Experts have weighed in on leaked Budget proposals to clamp down on the use of personal-service firms by contractors - proposals that come just a year after a Budget that restricted tax relief for travel and subsistence costs for contractors.
Martyn Valentine, an adviser at the Law Place, an IR35 employment consultancy that works in conjunction with Weaver Rose Solicitors, said the new plans would create a raft of work for those impacted.
"The leaked proposal will mean that public sector bodies, such as government departments and wholly public sector owned organisations (for example, Channel 4) must deduct PAYE and employer's National Insurance contributions where a contractor's representative is undertaking a defined role instead of providing a business to business service," he said.
He added: "While the precise details are as yet unknown, the responsibility for ascertaining a contractor's tax status may shift to the public sector body thereby creating unwanted uncertainty for a contractor."
However, at this stage it is uncertain whether the Chancellor, George Osborne, will try to target specific roles where abuses of contractor status and personal service companies are believed to have been particularly egregious, or will try to implement across the whole public sector - with the fear that they will be applied to the private sector too at some point in the near future.
"If the Chancellor adopts the latter approach IT contractors will be affected unless they can show that the engagement in question genuinely constitutes self-employment. That is to say, the work is entirely project based, there is no equivalent job within the public sector body, the individual does not hold a job title, the individual is not subject to or under a right of supervision, direction or control as to the method of undertaking the work and there is an enforceable right to substitute the individual," said Valentine.
As a result, contractors could find themselves tied up in bureaucracy. "Unfortunately, where recruiters and multi-disciplinary consultancies are involved in the recruitment process establishing self-employment can be a difficult process for IT contractors without legal representation due to the endemic practice of defining the services to be provided as a role," adds Valentine.
He continued: "The existing legal position is that a contractor cannot be self-employed if the work is defined by reference to a job title and this is likely to be aggressively applied by the Chancellor in the forthcoming Budget without amending the IR35 legislation."
The association of Independent Professionals and the Self Employed (IPSE) has branded rumoured changes as "short sighted", pointing out that Osborne had been appointed Chancellor in 2010 with a brief to cut bureaucracy. Making the public sector client decide the employment status of freelance workers, IPSE adds, will lead to confusion among workers and add costs for the taxpayer.
"Independent professionals in the public sector are not employees, and attempting to change their employment status will lead to confusion for the workers and added cost to the taxpayer," said IPSE chief executive Chris Bryce.
"Once you label a freelance business owner an employee, he or she will expect holiday pay, sick leave and other employee benefits which will have to be paid for by the taxpayer."
[Page two: "The contractors who should be caught currently by the IR35 rules, but are ignoring them, will be the ones who are likely to suffer."]
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