Contracting will grow which neither Government nor HMRC can prevent - online calculators

Contracting will grow which neither Government nor HMRC can prevent

Dave Chaplin is CEO of ContractorCalculator, founder of IR35 compliance solution IR35 Shield and author of IR35 & Off-Payroll Explained. He shares his insights and vision for the contracting industry as we head into 2023.

The right for people to freelance and be their own boss is a vital principle of any democratic country that values freedom and autonomy. Freedom means the ability to make our own choices, to chart our own course, and to live our lives as we see fit. It is the birthright of every person to determine their livelihood and be the master of their fate.

But there are those who want to take away our ability to make that choice and want to impose their own will and vision upon us. In the UK, the threat to freelancers has come from the most unexpected source. The Conservative Government has presided over a botched reform of the IR35 tax legislation, resulting in tens of thousands of self-employed people having their rights taken away. The right of people to be their own boss, has been eroded like never before.

This is unacceptable. But this is the result of what happens when the very same people who want to enjoy the freedom democracy offers them don’t exercise their democratic rights and fight. During our four-year Stop the Off-payroll Tax campaign, barely 1% of freelancers joined the cause. Whilst we forced a vote in Parliament, we lost.

A potential reprieve arose on 23rd September 2022 when a repeal of Off-payroll was announced, but alas, 24 days later, it was cancelled. The Finance Bill 2022-23 was the last opportunity to get any positive change or even a repeal of the legislation – but that never happened. On 10th January 2023, the door finally closed as the Bill reached Royal Assent.

For many, the choice to be a freelancer has been taken away.

Freelancers are the backbone

The flexible workforce and self-employment are the backbone of our economy and society. It is the driving force of enterprise and innovation, the spur to progress and prosperity. The people who take the risk of starting their own businesses and choosing to be their own bosses embody the British spirit of determination, resilience, and resourcefulness.

But the self-employed often face a great many challenges. They don’t have the same access to the benefits and protections available to those in traditional employment, such as the right not to be unfairly dismissed. And now, more than ever, freelancers and the firms that hire them face unnecessary legislative sludge preventing willing parties from exercising their freedom to transact frictionlessly.

Being freelance is not just about making a living. It’s about living a life. It’s about people having the freedom to pursue their passions, try new things, and take risks. It’s about being in control of one’s destiny.

But, being freelance is also challenging, and often the deck is stacked against you, and it can feel like an uphill battle to keep your head above water. So, why have the Conservative Government made it so much harder?

Why have the Conservatives turned against freelancers?

In truth, it appears the traditional values of the Conservative Party have been eroded. Disgraced ex-Prime Minister Boris Johnson was famously quoted as saying, “f&*k business.” Under his watch, the Party proceeded to trust HMRC with the proposals to reform IR35. But, it has become a toxic disaster for them and their traditional voter base.

Does the current Prime Minister, Rishi Sunak, really understand what it’s like to be a self-employed contractor? Does he know the struggle and perennial worry of keeping the order book full? Undoubtedly not, given he was the Chancellor who failed to adequately support the self-employed during the COVID-19 pandemic and the economic downturn that accompanied it.

Regrettably, the Conservatives have failed the self-employed, with no glimmer of hope on the horizon. With the Off-payroll legislation enshrined in Primary tax legislation, experience indicates it would be foolhardy to campaign to remove it. The battle lies elsewhere.

IR35 risk can be mitigated

My current work at IR35 Shield is heavily focused on tax enquiry work in the IR35 space, helping to defend many freelancers caught up in the wave of historic IR35 investigations. From our enquiry work, including tax tribunals, we have contemporary knowledge of arguments HMRC is developing that are not in the public domain. We then leverage our ability to assist our clients in getting compliance right and shore up their future tax risk.

From the front line, I can tell you that the case law is tightening up, making it much harder for HMRC to wrongly accuse an engagement of “deemed employment” if it clearly isn’t. But, and this is the inherent danger we see – many firms are sitting on “unsafe” determinations, where too much emphasis has been put on hearsay evidence, or working practices, without enough focus on the contractual terms.

What is the difference between a “safe” and “unsafe” determination? Well, for defending one engagement, the answer is about £100,000 in fees and an extra 3-4 years of pain as your company gets embroiled in a lengthy battle to prove its innocence. Imagine the cost if you have hundreds of contractors.

To minimise the risk of protracted HMRC investigations, firms and contractors must take advice from firms with experience defending cases to tribunals. The focus cannot just be on whether the determination is correct; it’s also about whether it’s easily defendable.

The positive developments

There are positives for firms in the future that take solid advice from the right people. The case law has evolved considerably over the last four years, and the binding case law from the Court of Appeal in April 2022 is unlikely to change dramatically soon.

The narrow method HMRC used to use, to flag someone as a “deemed employee” should become obsolete, although it is to be noted that at the time of writing, HMRC’s Employment Status Manual has not been updated since 7th March 2022, so elements are out of kilter with the law. (A reminder also that the ESM is not law and cannot be relied upon when defending a case during an investigation or in a tax tribunal.)

Provided firms glue their current determinations to the present case law, they will be safe. Procedures and processes around IR35 compliance can be as tight as can be, but the underlying bedrock of how you are determining status must align with the current case law.

What does 2023 have in store?

As we head into 2023, and you think about your choice to be freelance, be mindful that the current tax authority wants to take your right away and coercively push self-employed people into being employees because they think that’s better for them.

But, take comfort in the fact that more firms are engaging with the legislation because they need access to in-demand talent for commercial reasons. Firms are becoming more comfortable with the strength of case law to protect themselves.

One outcome of the COVID-19 pandemic is that firms have realised that they can tap into talent remotely and that the best way to do so is using operating models that engage contractors on an “Outside IR35” basis. The market is moving away from firms hiring “people” to get work done to buying “outputs”. Project-based remote working via thousands of mini-consultancies is the direction in which we are heading.

This is how the work is moving, and it is pointless for the Conservatives and HMRC to swim against the tide. They aren’t going to win.

From a campaigning point of view, it’s unlikely that you can do anything right now politically to bring about a positive change. But, when the next election comes, if you still want to cherish, protect and fight for your right to be a freelancer, then that will be the time to engage with your MP. Follow me on LinkedIn, and I’ll sound the horn when you are needed.

In the meantime, don’t forget that being a freelancer is not just about making a living; it’s about living a life. And as long as you’ve got that, you’ve got everything you need.

I hope you have a great 2023.

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