IR35! What’s in it for me?!
Melanie Peak – Freelance ERP Systems Trainer
IR35 is not a net to capture tax avoidance with. It is instead a noose to hang hard working contractors by!
In April 2020, the Government plan to extend the legislation on the new Off-Payroll Tax to the private sector. This tax legislation has been designed to combat tax avoidance. This is where services are provided by an intermediary, but where the services could have otherwise been provided by an employee if the intermediary had not been used. This could see a workers net income reduce by up to 25% by paying out additional income tax and national insurance contributions.
As someone that provides training and consultancy services through a limited company myself, I would question how this Off-Payroll Tax is fair. If there were not limited companies like mine that provided these services, you could argue that they could be provided by an employee. However, as my field of expertise is working on large scale system implementations, I have a great deal of skills and experience that I can bring to the table. Not only do I know how to write and deliver training materials and events, but I also have knowledge spanning across many central functions including finance, procurement and sales. I have extensive experience working on Enterprise Planning Resource (ERP) system implementations and work well under the pressure of a fast track project and the issues that arise from it.
To ask an employee to take on this role they are unlikely to have the same broad knowledge that I have developed through contracting. Or come readily skilled in the system that is being implemented across the organisation. Whilst they are able to be trained up, this comes with a time and cost implication as well as having somebody with the expertise in-house to upskill them. It also stretches the organisation by taking teams of people that would have otherwise been working on other areas in the business and dedicating them to months and sometimes years being seconded to the project. Should they then decide to leave, this puts the project at risk and can cause additional costs as well as time delays. Whereas a contractor can be replaced with another contractor with similar skillsets almost immediately.
I determine a fee for my services that takes into account my skills and expertise as well as the risks that I am taking by choosing contracting over that of being employed. Whilst this Off-Payroll Tax, often referred to as IR35, looks to apply additional income tax and national insurance contributions to those it deems that fall into this category, what is the Government providing us in return?
As a contractor, if I do not work I do not get paid. I do not receive sick pay, statutory or otherwise. Likewise, with maternity pay or for my male peers, paternity pay. I get no employee contributions into my pension. Where employees often have a pension advisor bought in to the office to offer advice, if I need further information I have to pay out for a financial advisor. We have no employee benefits.
Further to this I have additional costs. If I don’t work I don’t get paid. Therefore I cannot afford to take the risk of having to wait on huge NHS waitlists for an operation if I need one. I therefore pay out to have private healthcare insurance which is deemed a taxable benefit. So despite the fact I am not taking money of the state that is so desperately needed in this country for healthcare provisions, I then get hit again by having to pay tax for the privilege.
One of the ways in which to avoid IR35 is to have the resources in place to send a substitute if I cannot work. If I do not have this in place, this has a toll on my wellbeing by stipulating that I cannot take time off for holidays despite the fact that by doing so this is again not paid. It means that should I fall sick or obtain an injury, I may attempt to go into work when it is not safe for me to do so in order to avoid having the business I am working for demand a replacement. It would cause me additional undue stress at a time when I needed it the least, being made to worry about how taking time off without a replacement could make me in breach of contract. Whilst worrying about any potential fines I may face if I am then deemed to be within the scope of the IR35 regulations.
I ask the government this. If I was one person starting up a business as a limited company, would the same regulations be enforced? Are they not allowed to have shut downs over Christmas for example because they have not got somebody else to work instead? If they are ill and unable to work would you expect the business to carry on trading regardless?
On the reverse side, I am not covered by many of the same regulations that an employee is. If a contract I am working on comes to an end and I have not secured a new role, I cannot claim job seekers allowance because I am deemed an employee of my own company. Therefore being out of contract does not equate to being out of work under the government regulations. This means I am not entitled to claim the state benefit that paying towards my National Insurance is supposed to provide me with.
My life is impacted in many ways by contracting. It is harder for me to obtain a mortgage as I have no job security. Even if I have secured a contract for a year or more, there is always a clause within that which allows an organisation to cancel that contract with as little notice as one week. There are also clauses that state that if my work is deemed to be below the expected standard I would need to provide my services for free to resolve this or the organisation can request a refund. An employee however would have to go through capability procedures and the worse outcome of this could be that they have their employment terminated. They are not asked to work for free or refund their wages. If the employee was to disagree with this decision they have employee tribunals to argue it. What protection do we have?
I work for a day rate but there is no legislation in place to protect how many hours I work like there is for an employee with the working time directive.
Most of the time a contractor is needed on an immediate start. Therefore we cannot plan when to leave a company when we have secured a new role. Often our contract will come to an end before we have secured any new opportunities. This means that the risk is sitting with us. This can result in many weeks or months being out of work. It is also impacted by external influences that are outside of our control. Companies are less likely to embark on high cost projects when there is such insecurity with current affairs like Brexit so high on everyone’s agenda. This affects our ability to secure work by making less contracts available.
Contractors also have to go where the work is. This can mean high travel and accommodation costs and time away from their home and families. This is a compromise we have to make in order to stay in work. Whereas most people would not take employment on the same terms. Do we not have a right to expect to be paid a decent fee that reflects this sacrifice and the others that we have to make?
Whilst this has been designed to catch tax avoidance of those that could do the same role as an employee, does this mean that the Government are no longer going to take the considerable amount of corporation and personal tax that we have to pay every year off of us. Or maybe they want to change the rules on VAT so that we are do not have to apply that on top of our service costs. After all, surely we are either deemed employees or an intermediary service provider. How is it that they propose we sit in both camps where it works for them and yet we sit alone where we need something in return for all the tax contributions we are making to our country?
If the Government think it is fair to inforce IR35 on hard working contractors just trying to earn their keep, then I ask them what exactly are these additional tax and national insurance contributions giving us?
Of the MPs that are enforcing this new legislation, how many of you had the same moral high ground when it came to the expenses scandal where all the tax payers’ money was being spent on your frivolous purchases?
With the 2019 election coming up, what I want to know is what party manifesto provides contractors with any level of security against what we have to come?