…….was a phrase uttered by actor Patrick McGoohan in 1967 in his role as The Prisoner when he arrived at The Village as No. 6. He went on to say: “I will not make any deals with you. I’ve resigned! I will not be pushed, filed, stamped, indexed, briefed, debriefed or numbered! My life is my own.” Almost 50 years on, other “free” men have been floored by a different type of number – IR35.
Originally a numbered news release announced by the Government in the 1999 Budget, IR35 came into force in the UK in April 2000. The concerns and controversy surrounding the Intermediaries Legislation have established it as a term in its own right and it is still proving a hotly debated topic as the Government is considering giving end-hirers in the public sector a much more active role. I want to dispel the myth that IR35 tolls the death of the limited company.
The drivers of flexible working in the UK are growing, even more so since the recent decision to leave the EU, and contractors and their suppliers can feel reassured that limited companies are here to stay.
IR35 is complex and the latest move by Government to “make IR35 more effective” which translates to mean collecting more tax for the Chancellor, and levelling the field between direct employees and their workers in the public sector could be a double-edged sword for contractors, particularly since the Brexit vote. The existing rules of IR35 require contractors to self-assess and decide whether to apply the IR35 rules. Now HMRC wants public sector hirers to be responsible for that decision.
For risk-averse public sector hirers or their agencies who may just default to deciding that all contractors fall inside IR35 it would leave contractors paying more tax.
This, of course, would naturally lead to a brain drain of skills from the public sector at a political time when those contractor skills will be in even greater demand. Alternatively, contractors could up their rates to a premium for the public sector roles and cost the taxpayer dearly. Both could happen.
We know that demand for contractors has never been higher. There are 1.9 million freelancers and contractors working in the private and public sectors across all types of industries and sectors. They are a group of highly skilled professionals who have chosen to take control of their careers. For most, this does not include employment and attempts to legislate workers back into a Pay As You Earn employment model using tools like IR35 just won’t work.
These flexible workers want to work just like it says on the tin, flexibly. They want to control the money in their businesses, they want to ring fence personal assets from business assets and some want the chance to grow and build a brand and business that goes beyond themselves.
Limited company status affords contractors to decide when they can take out a salary and profits from the business. Importantly, they can also protect themselves and their personal assets from predatory clients because a limited company is a separate legal entity, unlike a sole tradership or partnership.
Clients, end-hirers, are not going to simply stop turning to contractors and contractors are not going to back to becoming employees just because this Government tells them to. The Government needs to wise up to acknowledging the value of the flexible workforce and stop putting obstacles in their way. Contractors are going to choose to trade in the way that is best for their business and themselves. If that is via a limited company then the Government is going to struggle to legislate against this without causing serious economic harm when the UK economy has never needed stability more.
Everyone needs to be working together now and although it may damage public sector services and cost the taxpayer more, this latest move by HMRC to impose increased taxes via IR35 on off-payroll contractors working in the public sector will not change contractors and how they work – limited companies are not going away any time soon, if ever, and contractors are not going to become imprisoned like employees ever again.
By Dave Chaplin, founder and CEO of ContractorCalculator