Finance Bill

Written evidence submitted by Tim Brain (FB17)

1. To whom it may concern.

2. My name is Tim Brain. I have been a flexible worker for almost 10 years now, working for many clients on a short-term contract basis all over the UK. I am writing to you today detailing my concerns should the off-payroll tax be introduced in April 2021.This legislation is flawed and should be halted/delayed whilst carrying out a full review.

3. A. There has been clear damage to public sector projects since the introduction of the off-payroll tax to the public sector in 2017.

B. The extension of the off-payroll tax to the private sector means more costs and regulations, and increased complexity.

C. Education & support activities have been woefully insufficient.

D. No expenses means less flexibility, and more off-shoring.

E. The threat of retrospective investigation means that I will have to leave any client for whom I am working when the off-payroll tax is introduced.

F. A full review of the off-payroll tax is required.

G. The Off-Payroll Tax is "double stealth tax" which will result in off-shoring.

H. Contractors will suffer financially & mentally.

I. HMRC have introduced by culture of fear when it comes to the off-payroll rules.

J. CEST is flawed.

K. The status determination appeals process is flawed.

L. I am happy to pay more tax, but want to be treated fairly.

M. The Office of Budget Responsibility have no idea what the net result is going to be of introducing the off-payroll rules into the private sector.

N. Long term contractors are accepting permanent jobs.

O. The introduction of the off-payroll rules will result in more tax avoidance.

4. The Government are pushing ahead with the rollout of the off-payroll tax to the private sector, ignoring two previous consultations and clear evidence of damage to public sector projects and to public services, including the NHS, with the off-payroll tax leading to staff shortages. It is my opinion that these lessons learnt have not been considered prior to the extension off the off-payroll tax to the private sector. The assumption is that the impact will be minimal. My experience of the run up to April 2020 suggests otherwise.

5. The impact of the extension of the off-payroll rules to the private sector has not been adequately assessed. With regard to the compliance burden, I am of the opinion that the right balance has been struck with particular regard to hiring contractors. However, AWR will need to be considered for those firms looking to move contractors onto payroll meaning more costs and regulations to deal with.

6. I warned HM Treasury in February 2019 that, based on HMRCs estimates, for circa 200,000 contractors assessed as ‘inside’ IR35, individual renegotiations would need to occur. I also warned that companies would not be prepared for this. Yes, they had the time but did not take action. The ‘comprehensive’ programme of education and support activities provided was not sufficient or targeted in the run up to April 2020. The same will happen in April 2021 unless a comprehensive & lengthy education & support campaign is driven by HMRC.

7. I cannot continue to commute 120 miles per day if I am unable to charge in any expenses for this travel. I will refuse to work via an Umbrella company or inside IR35 for any role that is greater than 15 miles from my home address, unless I am compensated appropriately. The flexibility of the contractor workforce will vanish overnight. Specialist contractors will not be as flexible as they have been historically. Jobs will be off-shored due to the lack of resource availability.

8. The relative bargaining power of parties will dictate the outcome, the starting point of which is that the hiring firm has a new tax bill which they are going to try and push onto the contractor by reducing their fees. In turn, the contractor wants a higher day rate to compensate for the extra taxation to be paid via PAYE and inability to charge in expenses. I am a legitimate contractor working outside of IR35, but my current client is refusing to engage PSCs as they are running scared of HMRC/HM Treasury. I will terminate my contract when the off-payroll tax is introduced, should my client not be able to provide a contract with a supporting outside status determination, as I have no confidence in not being retrospectively investigated for the period that I determined I was working outside of IR35 with my current client.

9. Instead, I sit at home whilst this whole thing blows over. This damaging measure will decimate contracting and freelancing in the UK, and will harm the economy. The introduction of the off-payroll tax to the private sector will see a big game of musical chairs – all contractors moving roles due to the threat of retrospective investigation by HMRC. The net result is that any client for whom I am working will be unable to deliver change projects currently resourced by its contractor workforce. I am currently working on a cyber security project to ensure full auditability around what third parties are doing when logged into my clients corporate network. This will now be significantly delayed. In case of a breach, my client may not be able to confirm what happened, where and why.

10. I am asking for a full review of the off-payroll tax, and legislation to ensure that fair assessments can take place. The self-employed, and the services that they provide, should not be locked out of our economy at such a crucial time for our country.

11. Give the self-employed an opportunity to continue to contribute to our economy.

12. The Off-Payroll Tax is "double stealth tax" on the many businesses that use contractors and freelancers. It will slap a huge 14.3% tax on UK businesses, made up of employer’s National Insurance (NI) (13.8%) and the Apprenticeship Levy (0.5%). Many firms, however, simply won’t pay this extra sum and already firms are laying off contractors, seeking cheaper off-shore providers and telling other workers they will have their pay rates slashed.

13. According to HMRC’s own figures, at least 150,000 UK contractors could lose up to a quarter of their pay, with some families unable to pay mortgages as a result and thousands of contractors will be forced into false employment and unfairly taxed as employees with no employer pension contributions, sickness or holiday pay. Some of these impacted UK contractors will undoubtedly suffer associated mental health problems.

14. My own experience is that although my employee status was determined as ‘outside’ by the Governments own CEST tool in the run up to April 2020, my client at the time had implemented an off-payroll PSC ban – something which HM Treasury said would not happen as; ‘the rules only apply to individuals who are working like employees under current employee status tests, and do not apply to the self-employed’. I quote from the letter I received from Mel Stride MP on the 17th December 2018.

15. It is frustrating that HMRC continue to attempt to justify the flawed CEST tool. Mutuality of obligation continues to be ignored – CEST incorrectly assumes that it exists in every contractor engagement. This is frustrating when MOO has been the deciding factor in many IR35 tribunals.

16. The status determination process will only be effective where companies are willing to engage via PSC. With regards to an appeal process, the fact that the client who originally determined your status is also responsible for considering your appeal suggests to me that the appeals process may be flawed.

17. We continue to see the tax system become increasingly complex. I am happy to pay more tax, but also want to be treated ‘fairly’.

18. The Office of Budget Responsibility gave an uncertainty factor on their estimates for the off-payroll extension into the private sector as ‘Very High’. The most important factor is the behavioural uncertainty, for which they have ‘no information on potential behaviour’.

19. I have already seen 3 of my long-term contractor friends accepting permanent jobs. The job market is dead due to Brexit, covid 19 & IR35 uncertainty. The result is ultimately less tax income for this government. As an independent contractor, my long-term contractor friends would pay circa £36000 per year in corporation tax, dividend tax & VAT. As a permanent employee, HM Treasury will see approximately £16000 per year in the form of PAYE, employees and employers NI. The pendulum has shifted too far – the now significantly reduced benefits of working as a contractor will mean more people falling back on the security of a permanent position.

20. We are already seeing evidence of umbrella companies appearing who are promising 90% take home pay. It goes without saying that the introduction of the off-payroll rules into the private sector will lead to the increased promotion of tax avoidance.

21. The UK economy and our public services are reliant on specialist self-employed contractors and freelance working, contributing their time and skills, alongside employers. These self-employed workers pay for their own pensions and don’t receive holiday or sick pay, and they do not have the security of employment and often have periods without any work.

22. It is unfair that HMRC want to tax these people - who do not get the benefits of employment - as employees, and will decimate the vibrant contracting and freelancing sector in the UK and lead to loss of jobs for thousands of people.

June 2020

 

Prepared 15th June 2020