Chancellor’s contractor cash grab weakens future of UK economy, warn experts
Chancellor Phillip Hammond claimed that he is “building an economy that works for everyone” in his Autumn Statement, but experts are warning that the IR35 reforms and other measures announced yesterday are a threat to the gig economy, and threaten to increase public sector costs at a time when savings need to be made.
National accountancy firm Danbro claimed the Government doesn’t understand the modern way of working in Britain and he has left millions out of pocket. The Association for Professional Staffing Contractors (APSCo) also voiced concerns about the reforms announced in yesterday’s statement, saying they are ‘illogical’.
By forging ahead with major reforms to the way public sector contractors are paid and launching a major cash grab on the self-employed, Danbro says the Chancellor has again punished the UK’s five million contractors and small businesses, potentially weakening our prospects ahead of Brexit.
Executive chairman Damian Broughton says:
“There was some good news for contractors and self-employed people. The wave of investment in housing and infrastructure will create opportunities and cuts in corporation tax will help but the overall message from this Autumn Statement was a bleak outlook for many freelance workers.
“The Chancellor pointed out that the UK has recovered stronger than most other nations and that is down to the strength, depth and skills of our temporary workforce. They have allowed key industries to access the skills they need for growth.
“However, despite reviews into modern employment being launched by the Government and other bodies like PRISM, this Autumn Statement has punished contractors again. These key workers are increasingly being taxed like employees, but have none of the benefits.
“We must embrace this population and engage with freelance workers. We need to give them the freedom to keep the skills moving so businesses are encouraged to invest, knowing they can access the expertise they need. This will become increasingly important as we approach Brexit.”
One of the key outcomes of the Autumn Statement was a decision to forge ahead with IR35 reforms in the public sector which will see the recruitment agencies or organisations who engage the worker having to decide whether they fall under intermediaries legislation. HMRC estimates 90 per cent of the 20,000 people who operate as contractors in the public sector will be caught out.
The Chancellor also said the five per cent tax-free allowance would be removed as workers no longer had the administrative burden of deciding their status.
Both APSCo and Danbro believe the number of contractors in the public sector is much higher and that a potential crisis is looming.
Samantha Hurley, Operations Director for APSCo said:
“While HMRC has developed an online tool which it says will determine an individual’s tax status, we believe that the public sector, the accountancy profession and the recruitment sector are sceptical as to whether this tool can deliver certainty. Consequently most placements will be treated as within IR35 in order to mitigate risk- this is likely to result in multiple appeals and employment claims against the public sector.”
“People who provide freelance skills to public sector bodies will now have to change the way they operate and, for many, work through an employment business as there are fewer incentives to have your own company. The likelihood is that these rules will also soon be applied to the private sector.
“If penalising contractors and freelancers further wasn’t enough we also as yet have had no sight of the online tool that the Government propose to use to assess these workers. It’s disappointing that we find ourselves again with no idea of what these changes actually mean and how, as a sector, we are supposed to work with them. The outcome of this is sure to be increased uncertainty and as a result of this is, many will leave the public sector, creating a massive skills crisis.
“We’re also puzzled that the five per cent tax-free allowance has been abolished as this is supposed to be for the ongoing costs of running a limited company, not just for the initial admin burden of assessing your status.”
Other key changes are aimed at preventing “disguised remuneration”, which includes preventing the inappropriate misuse of the VAT flat-rate scheme by creating a 16.5% flat rate for self-employed people.
Mr Hammond said he was aware of the evolution in the way Britain works and said he would be looking at future changes, suggesting contractors and those in the gig economy face further regulation.
Samantha Hurley said:
“This is a disappointing and illogical move. The public sector will inevitably see its costs rise at a time when budgets are already very tight. A survey of independent professionals undertaken in July this year by IPSE, a membership body for independent professionals and the self-employed, revealed that 39% of respondents would work on public sector contracts but would increase their day rate to compensate for the extra tax liability.
“The same survey showed that over 50% of respondents would refuse to work on public sector contracts – or would terminate contracts if required to pay tax and NICs as an employee when delivering services independently. We are already seeing the public sector’s access to talent being severely impacted – there have been walkouts from a Ministry of Defence Agency which has left several major IT projects on hold.
“The Chancellor has just promised large scale investment in infrastructure and science and digital innovation to the tune of £23bn over the next five years. However we would question how the public sector will deliver on this promise when HMRC has just destabilised the flexible labour market in the UK, which Government Departments and local& regional Government rely on.”
“Contractors should be concerned for the future. The Government is continuing to squeeze the lifeblood out of this sector. HMRC are tackling the abuses of the few by applying wholesale changes and this only serves to penalise the majority who operate fairly.
“This is a lazy approach and the Government must do more to understand this sector and the modern way of working so they can look at future policy and make sure Britain creates an environment that allows the temporary workforce to flourish. This will give our businesses and overseas organisations the confidence to invest in the future of the UK.”