The proof that private sector IR35 reform will trigger a UK worker exodus is me
Everyone from Members of Parliament to tax experts were right to warn that the planned changes to IR35 from April 2021 will cause the UK to suffer a brain-drain, writes a CISSP/CISM-trained security specialist and IT-business consultancy boss with over 20 years' experience in retail, telecoms and banking.
Unlike unconvinced Treasury minister Jesse Norman, who says the government will merely “test” whether the reform causes workers to flee the UK economy by doing research, I know that Alison Thewliss MP, WTT Consulting’s Graham Webber and many, many others are correct to be concerned about a UK worker exodus.
The only thing that these MPs, experts and others got wrong is the timing of when the brain-drain will occur. How do I know all this, definitively? Because I’m a UK tech entrepreneur now sat on the train to Heathrow airport, heading to the UAE for the foreseeable future.
My leaving the UK is a direct result of the incoming off-payroll framework, and the impact that it has had on my award-winning IT consultancy already. But no matter Mr Norman, I’ll take myself, my workers, and my business elsewhere.
The winding down of my consultancy’s supply of cyber defence services – and contractors -- to one of Britain’s leading banks has happened because the bank’s reaction to the unwieldy, planned legislation has made any other move unworkable. If the legislation wasn’t such a mess, maybe the bank’s reaction to it wouldn’t be such a mess either, in which case staying on as one of their primary technology suppliers might be financially viable.
But no. Every worker I supply to the bank has been forced to accept a three-day week (refusal results in termination); forced to do short working days (refusal results in termination) and forced to use an umbrella company (refusal results in termination).
The only possible exception to the latter -- mandatory umbrella usage, is unless these bonafide, genuine contractors agree to an unreflective, financially prohibitive, and much more taxing ‘inside IR35’ determination, as is the end-user’s legal requirement under the incoming reform. So the bank is exercising a legal right under legislation which isn’t even in force yet.
Asleep at the wheel
To allow this situation to unfold, the government and in particular, HMRC and HM Treasury are clearly asleep at the wheel. To compound things for me and my workers ‘on the ground’, because of covid-19, the bank will only extend contracts until the end of November (it was December), with no promise of renewal until January. Certainty or sound financial planning is therefore not possible for any commercial entity supplying this financial institution.
The contrast? A lucrative deal with a government in the UAE, which I’ve now secured and have reassigned almost all my contractors and workers to. They, like me, are already happier.
They, like me, will miss their families. And they like me will face the inconvenience of travelling tens of thousands of miles away simply to work and supply their expertise. They will have a new language and culture to contend with; and must get used to a whole new way of working. But they will be free from the pernicious Off-payroll Working in the Private Sector legislation, which an inquiry by the House of Lords has found to be “flawed.”
Contractors in the UK today are...
Once upon a time in the UK, they said that freelance professionals get paid more and pay slightly less in tax to offset the uncertainty and risk they face of being an independent worker. Well with the way the IR35 legislation is being interpreted at the bank, and many other financial institutions in the UK (which use contractors in significant numbers), these workers are:
- FORCED into an umbrella company
- FORCED to pay employer’s NI, the Apprenticeship Levy, their umbrella company’s fees, and then subject to full PAYE tax
- DENIED the ability to offset any genuine business expenses
- THREATENED with termination if they decline umbrella usage and fail to accept an ‘inside IR35 determination’ (afforded to them under a proposed but not in force piece of legislation).
- THREATENED with termination if they decline short days; a mandatory furlough (meaning they can be paid for no more than just 3 days’ work a week).
Some reading this may raise eyebrows about my UK consultancy accepting a contract in a UAE country, and specifically with a government of the Middle East. But just consider the above conditions and rights for workers here in the UK, and view them through the lens of the bank’s ‘short week’ model. You are given just three days to work, yet you are still expected to deliver five days of work within that timeframe! The result? I know many contractors who have been coding and programming for a massive 40 hours, but are only able to submit timesheets for 24 hours. Add to this indignity that contracts are ending in November (when they were scheduled to run until December), and for a few workers, actual cuts to the headline rate of pay, and I dread to wonder, whatever might be next. When is ‘too low,’ that we say ‘no’? What about the shirt on my back?
New starters at this bank which easily attracts candidates because of its big-name, aren’t explicitly told but its IR35 reform-led working model for contractors means they can only work a maximum of 10.5 months -- if they are lucky. And for most, it’s three days a week for the foreseeable future. By the time you make all the above deductions, and take into account the comparative lack of workplace rights, contractors are now infinitely worse off. To the minister in charge in this area, Mr Norman, I ask what incentive is there for this bank and other large companies NOT to use contractors, just so that they have them over a barrel?
Rubbing salt into the UK's wounds
As I look out the window of my carriage, I can’t help feeling that IR35, the government’s “tin-earned” approach to reforming it and the treatment of hard-working contractors who’ve had the gumption to strike out alone is, quite frankly, an utter disgrace. I’ve yet to hear anyone not on the government’s payroll give a compelling argument as to why the new off-payroll rules are fair or even close to being fair. To rub salt into the wound, I’ve just received an SMS text message confirming that the bank has now outsourced all the work which my consultancy and my workers were doing, to a notoriously low-cost, offshore destination. This off-payroll rule-induced decision (the bank simply no longer has the staff because the talent is all with me going to the UAE) will invariably cost the bank more money. And in the long run, it will of course lead to less tax revenue for HMRC. How all these totally adverse consequences of IR35 reform for our economy, for our businesses, and for our individual workers can be a desirable outcome for the UK is totally beyond me. Stop this train, I want to get off.