Contracting’s success has been in despite of government’s efforts and not because of it. It is hard work and perseverance by contractors, recruiters and the sector’s other stakeholders and service providers that has overcome the regulatory and other barriers imposed by the Coalition Government since 2010.
That’s why Chief Secretary to the Treasury Danny Alexander’s recent speech to students and staff at the Saïd Business School, which was led by the headline ‘Business has become a business-creating powerhouse’, rankles. “Government has put in place policies that help hard work and entrepreneurial spirit to flourish,” was Alexander’s lead quote.
Only a single one of the policies and measures that Alexander listed to his audience, ranging from the British Business Bank to the Advanced Manufacturing Supply Chain Initiative (AMSCI), will directly benefit contractors. That’s the £2,000 Employment Allowance, and then only to the tune of £164 a year. And even that’s only if a contractor has no other income apart from client fees.
In contrast, the government has introduced a raft of new regulations and measures that, if they weren’t made of sterner stuff, would have marginalised contractors as semi-criminals in the eyes of the media, public sector and wider population.
Let’s start with IR35, which is still with us despite a pre-election promise that it would be reviewed and potentially reformed. The government’s own tax experts, in the form of the Office of Tax Simplification (OTS) review, and the House of Lords concluded that IR35 is not fit for purpose. Yet it remains, and costs each limited company contractor hundreds of pounds each year in compliance costs.
Then we had the Agency Workers Regulations (AWR) come into force in October 2011, introducing further compliance costs for the umbrella contractor sector, and placing an additional burden on recruiters and service providers. This was followed a few months later by the public sector contractor witch-hunt that in turn led to the introduction of the off-payroll rules in September 2011and thousands of additional contractor tax investigations by HMRC.
The government literally hounded thousands of contractors working for government departments, yet despite this the Treasury’s own review of contractor use in the public sector confirmed 94% of contractors’ tax affairs were in order. Furthermore, many UK-based workers were in fact displaced by non-EU workers paying less tax. This helped UK entrepreneurs how, exactly?
At the same time, HMRC launched its new IR35 administration framework that included the business entity tests (BETS), an entirely new layer of IR35 administration for contractors to navigate. The BETS were clearly a valuable step in helping “hard work and entrepreneurial spirit to flourish”. So much so, they will be abolished in April 2015.
Following the introduction of the public sector off-payroll rules, the BBC decided it wanted its own employment status test. The BBC engages tens of thousands of contractors and freelancers. “Flawed”, to put it mildly, was how the test was described by employment status experts. Sadly, many contractors were forced onto the payroll or chose not to work for the BBC as a result.
The False Self-Employment legislation (Onshore Employment Intermediaries legislation) was proposed at the end of 2013. When it was first announced, tax experts believed that it would force all limited company contractors into Pay As You Earn (PAYE) schemes. HMRC rapidly backtracked and ‘discovered’ a get-out clause so small firms trading as limited companies were not within its scope.
But when the legislation and HMRC guidance about reporting requirements, the Employment Intermediaries legislation reporting rules, were published, contractors were back on the agenda. Agencies will now be forced to gather and report to HMRC wholly inappropriate data about the directors of the businesses they are engaging to fulfil contracts for end-user clients.
If that were not bad enough, any contractor who now subcontracts work to another contractor or freelancer, even if only for an hour, must request detailed personal information and report it to HMRC for a period of a year, and keep records about the engagement for three years. Fines for non-compliance rapidly run into tens of thousands of pounds. At one point in his speech, Alexander quips “But there’s more work to do in the SME sector”: he’s got it spot on with that line!
Finally, the government has initiated two further reviews that have yet to be completed. The first is by the OTS about employment status and the second by HMRC into the use of expenses by umbrella companies. Both will make interesting reading and, judging by past form, will result in even further time consuming and expensive regulation for contractors.
In the light of all of the above that has occurred during the life of this supposed pro-business government, it is worth including Alexander’s closing words:
“So if you run your business, whether you’re large or small, whether you serve local needs or whether you export to the other size of the world, whether you build or invent or assemble or consult: we are on your side.”
If this government is supposed to be on our side, heaven help us all when we have a government that isn’t.