Finance Bill

Written evidence submitted by Anthony Johnson (FB19)

Call for evidence – finance bill IR35

The IR35 policy has and will cause more damage than good. I have been consulting for over 25 years and have constantly had to reskill during this period. I work in the IT/Finance/Data science sectors. Providing financial institutions with quantitative software solutions.

What effect will these new measures have on a chain of contractors and sub-contractors?

As a result of IR35 in December my work order was terminated and the sector now has blanket banned working with private companies. The current demand for consultants is at the same level as 2009. Should I choice the new IR35 contract terms, I will agree to terms less beneficial than those in permanent roles (excluding PAYE/NI) paying 45% tax on my revenue.

As a result of IR35 I have had not income since December. The government put back the IR35 to ensure they did not have to contribute any assistance to any contractors via the work retention scheme. This was a cynical measure and shows what their thoughts are with respect to consultants.

Risk considerations when consulting

There is no consideration to the risk absorbed when providing clients with consultancy work. When work finishes I cannot claim redundancy and we don’t automatically walk into new roles. At present due to thought market conditions and the off shoring of work this has become harder, and the time between roles has increased. I estimated 3-4 months is the length between roles. The risk premium for operating in this market is now unviable. Consultants operate on a short term basis, employees operate on a long term basis with respect to employment. Aligning the two with the same tax regime is fundamentally not workable or viable. The tax rate makes it impossible to save for any downtimes. VAT, employers NI, employees NI, corporate tax is just unmanageable.

Typically when the economy is bad we are the first to be fired. Protecting permeant works from this fate. Now with the tax rate I cannot save nor invest in developing new software. I’m unable to deduct expenses and thus I now can’t compete against any large company. Everything I do is taxed beyond that of an employee or larger company (employees pay around 30% tax, I will pay 45%). I am unable to contribute to my pension. I am forced to work for an umbrella company that I have no knowledge of, nor has my interest at hand.

Umbrella companies

I am forced into a situation is this economically, emotionally and ethically unacceptable. Anyone who thinks this type of working practice is acceptable on any level is vindictive and does not have the interest of people in their vision.

The cost to manage an umbrella company is very high and we are forced to use one. I cannot structure my tax affairs as this is not going to be done by someone in an umbrella company or thee client. I am now a second class worker with no rights and pay a higher tax rate. This is not a level playing field.

I pride myself that I ran my own business and have built a company which provides flexible work to the finance sector. I "had" multiple revenue streams. This business is now unviable as all the revenue streams the company has is now taxed at PAYE rates. Even though the roles would be outside IR35 determination. Companies are just not willing to take any form of risk with an IR35 determination.

Treating consultants as employees or taxing them as such does not allow for any risk in the system. There will be no benefits from work carried out by the client, no job security. Large organisations will have a field day and worker’s rights will be eroded. They will push normal workers into fixed term contracts as this is cheaper for them to do. Workers’ rights will be reduced as there is no alterative working environment. Entrepreneurs will no longer have this route to enable them to start business. The dynamic working practices will turn into uncompetitive stale practices. Any support staff that I use to keep my business running will no longer exists. Office space, accountants, insurance, cleaners, temp staff no longer viable.

Growth of consultants of the years

The key consideration that has never been raised is why has consultancy numbers increased over the years? The primary reason is that large companies are benefiting from out sourcing their responsibilities. With IR35 we now have a situation where consultants with have no rights but pay more tax than permenant employees. Paying the emploers NI as well. How is this fair. But more importantly large organisations will exploit this and shift their workforces into these arangements. They will not have to pay holidays, pensions, health care, this list goes one. With the out look of the economy this will become the norm. This in someways is the perfect storm for large organisations and employment rights. Employees will no longer have any.

Changing the emphasis to client determination without the client having to absorb any risk in the determination will ensure that this market place will not exist and is uneconomical. There is no incentives for large companies to correctly determine these roles. Both operationally and from a risk perspective. This can be fixed not allowing companies to right off the VAT as a tax if they believe the consultant is an employee. HMRC and large companies have worked together to strengthen their hand. HMRC and the current government has blindly walked into this scenario. Where the only winners are large organisation.

The UK has benefited from a flexible workforce which makes it competitive and unique to other countries. This work force is being outsource offshored and the economy is losing its competitive advantage (this is already started to happen). This workforce will not come back. The cost of implementing new projects and companies trying to implement change will slow and become burdensome. More importantly the personnel whom undertake the changes will all be from another country. Information transfer will stop and there will be no incentive to learn new skills as quickly as possible as there is no motivation to do so. The only winners will be large consultancies who have no incentive to invest in the local economy. I have seen this first hand where a large consultancy outsource a whole team to India. At least all the revenue contractor’s spend is onshore and is recycled into the local economy. Supporting small companies.

Are the tests for determining employment for the purposes of these rules sufficiently clear to both engager and worker?

The issue is the determination and CEST tool is unfit for purpose, so there is no independent dispute channel or any form of middle ground. Contractors are being pushed into a corner where we have no room to move within the law. There is no legal framework in place that is fair and equal. How can you implement a policy without this as a minimum standard of care.

Will the Bill, as drafted, achieve the Government's objectives?

I am from New Zealand and have been in the UK for over 30 years. I have a wife and two children. I was planning to stay here longer but will moving back to NZ if the bill goes through. Sadly it’s uneconomical to live in the UK if the bill goes through. The UK will lose two contributing persons and two future contributors as a result of this policy. I will look to outsource work from the UK and take that work to NZ. This makes no sense and will be disappointing to me to have to do this. But if a country is no long welcoming or economically competitive then these are the steps we must take to make a living. I must state I really like living in the UK so to leave will be very sad.

Misconception

There is a misconception that contractors doing the same role as a permeant are gaming the system. Even if two people may work on the same functions the two parties have completely different objectives. I have 25 years’ experience with a broad work base. If I work on one piece of work with someone else, does that make me the same?

How can a company with multiple personnel be treated as an employee of the client? This is what I am being forced into. With blanket bans it makes sourcing clients impossible in London.

I personally never want to be a permanent employee, I think my company has something to offer. But this endeavour will be destroyed as a result of this tax bill.

HMRC’s estimate of a tax grab will never be as high as it expects. The reasons are below:

1. The structure is uneconomical for a contractor, people will change to permanent at a lower salary. This sector is now dead.

2. Being a permanent employee is more advantageous that a contractor at present. Make no mistake IR35 is in place at the moment. I have missed a number of roles as I was depressed about being under IR35 and being taken advantage of by umbrella companies.

3. People will retire early

4. People will move offshore

5. The workforce will offshored.

6. The economic impact on contractors will be significant. Spending will reduce, and the economic multiplier effect is reduced. Government spending from tax does not distribute cash to smaller firms. We saw this in the last economic crash.

7. The upheaval to projects caused by contractors resigning will reduce the economic output and GDP. Contractors have to resign to ensure they are outside IR35

8. The disincentive to work will be high as there is no benefit to working hard and getting new clients. I am turning down roles that I would have previously looked at are uneconomical when 45% tax is factored in.

9. Disincentive to constantly reskill and become competitive

This issue is not about tax. I currently pay in tax on the following:

                VAT                                       

                NI Corp

                NI Personal

                PAYE

                Corporation Tax

                Dividend Tax

It’s a misnomer consultants avoid tax. HMRC are quite happy to harbour tax avoiding international companies that destroy the domestic market place.

They are just play ground bullies who can only take on small companies whom they could not prove were acting as employees for the past 20 years. This is about HMRC saving face, but in doing so destroying the economy. |This has been confirmed by the House of Lords report.

In your opinion, are there better or simpler ways in which the objective of the new rules might be achieved?

If large companies determine someone as inside IR35, then they should not be able to offset the VAT for that person. As they are considered and employee. This will financial impact large companies. Consultants can then operate as normal. The government gets their 20% tax. Consultants operate as they does now.

At present large companies have gamed the system and are out sourcing benefits to a system designed to add to zero hours working. Thus we have zero hours for the low paid, and zero benefit for the middle income. This is just what large corporates want and will now get.

Kind regards

Anthony Johnson

June 2020

 

Prepared 15th June 2020