What a brolly boss wants from Osborne
With a Budget looming it’s easy to forget, but at the end of 2014 - well before the general election and the Conservatives forming a majority government - there was a flurry of adverse media reporting with contractors as the unenviable focus, writes Lisa Keeble, managing director of ContractorUmbrella.
Overarching contracts were going to be put under the microscope; travel and subsistence relief would be restricted for both umbrella and PSC contractors if their end-user supervised, directed and controlled them, and union UCATT launched a thoroughly misguided campaign against umbrella companies following changes to tax rules. Suddenly, the HMRC camp – which has a big say in all these issue - then went ominously silent, which is most unlike them.
Squeeze or Reprieve?
Now, in the middle of 2015, we are heading towards another Budget; an ‘emergency’ one no less but what will it bring? Well, with public sector net debt standing at around a whopping £1,510,468,625,000, it’s fairly safe to assume that there will be no giveaways in this latest ‘emergency’ Budget (George Osborne’s first Budget as chancellor was an ‘emergency’ one too, in wake of the coalition being formed). And with HMRC still hungry for revenue, some sectors will invariably be squeezed on Wednesday.
Whether the contractor sector is one of them remains to be seen. But let’s remember that the chancellor and the Tories received support from the business community leading up to the May general election. We must therefore hope that PSCs and umbrella companies will get a reprieve from the heavy-handed legislation they were subjected to under the previous coalition government.
The temporary labour market has seen enormous growth over the last few years, giving a boost to the UK economy. To impose legislation on a vital engine of the economy with the effect of restricting its power or worse, putting both it and the growth it has achieved in reverse, would seem illogical (at best).
Osborne should separate the wheat from the chaff
Many of the faults that HMRC finds with our sector of independent work stem from employment rather than tax law, as employment status is at the root of much of the legislation that’s been introduced over the years. Since the introduction of IR35, successive government have been trying to force contractors into the role of either employee or employer and, quite frankly, they haven’t had a great deal of success.
I hope that this Budget will introduce something that shows the powers that be to have taken the time to understand the sector, and the many thousands of workers within it. Genuine contractors, as opposed to very low paid workers who have been forced to work through an employment intermediary, are vital to the UK economy and should be recognised as a separate entity. As I’ve said in the past, such professionals really are a different kettle of fish to the average ‘temp’ and Wednesday’s Budget should acknowledge this.
‘SDC’ – taking over from IR35 as what contractors worry about?
But so much depends on HMRC. Worryingly, the tax authority seemed to move the goalposts recently by disregarding the standard employment status tests and focusing on only one – Supervision, Direction and Control (possibly as a result of losing the Talentcore case). If this trend continues, it is a fair assumption to make that IR35 would be superseded - or just naturally die a death. Perhaps it’s already happening -- fewer and fewer IR35 enquiries are, in fact, being launched.
This new ‘SDC’ focus by HMRC will affect PSC and umbrella workers, but it will be interesting to read the fine print to see where the determination of status lies. Questions abound -- will it be up to the end-client to decide if they are supervising, directing and controlling the worker? Will it be up to the recruitment agency, the workers themselves or the umbrella company? More importantly, who will be carrying the can if they get it wrong? We were quietly expecting a HMRC consultation on this very subject last month but, just like they did late last year, the Revenue seems to have gone strangely quiet. We currently assume that we will hear more post-Budget, rather than in the Red Book on Wednesday.
(Even) More questions than answers
Meanwhile, the Elective Deductions Model (EDM), condemned industry-wide last year, seems to have been accepted by several of the major players this year. More questions: does this mean that HMRC have decided employment status is too big a can of worms to keep opening and that they will focus purely on tax? Or is just that those major players have jumped the gun?
As is evident, lots of searching questions rather than solid answers are easier to come up with because trying to make predictions about the second Budget of 2015 is like shooting fish in a barrel. It’s even trickier thanks to HMRC wrong-footing us by acting in a way that’s not always consistent. One thing is for certain – what the contractor sector really, really needs is some clarity from the Revenue and, who knows, this Budget might actually be the one in which we get it; but I won’t be holding my breath.