Should UK freelance contractors worry (yet)?

Recent articles in the Guardian and Daily Mail have highlighted current plans that are under consideration by the Chancellor, George Osborne to raise an extra £400m from independent contractors – by closing what he sees as a tax loophole.  But should all UK-based freelance contractors worry (yet)?

According to the media, Osborne is considering taking steps to close this ‘loophole’ after “publicity surrounding BBC presenters who reduced their tax bills by arranging to be paid through personal service companies”.  Such PSCs are reputed to have been used by high-profile personalities (apparently including Fiona Bruce and Jeremy Paxman) to minimise tax liabilities”.

The Public Accounts Committee asserts that the BBC alone may have over 1500 “disguised employees” and warned that the “BBC could have reduced its employer national insurance contributions (NICs)”.

As such The Treasury is reported to be looking at ways of forcing contractors who use Personal Services Companies ‘onto the books’ as an employee if they remain with the same company for more than a single month – and will place the onus for doing so on employers.

The Guardian notes that “the government acknowledges that a small number of professionals will still legitimately use personal service companies. Some IT workers might work for a company for a short period or they might work for multiple companies at the same time. In that case they would not be seen as an employee. Builders doing one job on a private house would be exempt”.

Noting that our government has a reputation for using the proverbial sledgehammer to crack a nut; any new legislation is likely to have far-reaching and (perhaps) unintended consequences for both contractors and clients alike.

So should all freelance contractors be worried (yet)?

From reading the respective articles (from polar ends of the political spectrum), I will put my neck on the line and suggest that independent contractors who work with clients either directly through their own company or through a third-party agency; and who are contracted to a specific (time-based) project or contract will have little to fear (based on the small amount of currently available information) – as long as they are fully compliant with all aspects of IR35.

My concerns would relate to independent contractors who are working for a client without a tightly bound scope (and length) of work and/or who are currently engaged in any form of manpower substitution; or those limited to a single client (throughout a financial year).

In an ideal world, Osborne will recognise the value of utilising freelancers on any project  – and the many operating benefits that they bring to clients of all shapes and sizes – and ensure that any legislation is sufficiently robust to rightly close loopholes exploited by the glitterati; whilst protecting the genuine independent contractors who contribute massively  – and fairly – to UK Plc.  No, I’m not convinced either.

The IPSE share my concerns with regards to the potential impact on independent contractors (and for them, not just those utilised as manpower substitutions) – and they invite all concerned contractors to write to their respective MPs using their handy template.

Will this signal a reinvigoration of the IR35 legislation and a tightening of the rules?  Perhaps that is the best that independent contractor can hope for at this stage.  With luck this plan will not materialise, or will only effect those who are indeed genuinely disguised employees.  I remain unconvinced, though.

Looking at the (scant) information available – what do YOU think the Chancellor will/should do?  Let every one know in the comments section below.

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