The Off-Payroll Damage Begins – large firms terminate self-employed contracts

9 Oct 2019

The reality of the damaging Off-Payroll Tax, due to be introduced in this year’s Autumn Statement, is now being seen as more and more large businesses are laying off self-employed workers, with many facing a life-changing pay cut of up to 30%.

This is despite repeated claims by the Government and HMRC that the roll out of IR35 ‘off-payroll rules’ will not have an impact on the genuinely self-employed and that somehow the controversial changes won’t damage business and the economy. It’s now very clear that they already are, even before actually being introduced.

Barclays, Lloyds, GlaxoSmithKline and HSBC have all announced that they will cease all engagements of self-employed workers who have for decades provided services as micro small businesses. GlaxoSmithKline already has an HMRC investigation into 1,500 contractors and whether they fall within the controversial and much criticised IR35 legislation.

Lloyds have began telling its contractors that they will have to either move onto PAYE or work through third-party umbrella companies which means, according to the Financial Times, a pay cut of up to 30 per cent. The grim alternative is to stop working for the bank altogether. There is also a danger that those forced into umbrella schemes could be at risk of being directed into tax avoidance schemes, which is what led to the loan charge scandal, where many self-employed workers were advised to use umbrella companies to avoid being caught by IR35.

Barclays have said it would “instruct its agencies and managed services providers to engage contractors on a PAYE basis only,” for new or renewed assignments.

The Off-Payroll tax is a new 14.3% tax burden on firms that hire self-employed individuals, due to paying both National Insurance and the Apprenticeship levy. Firms will simply not be able to manage this very significant additional cost, so it will mean significantly lower rates of pay for thousands of people, with contractors reporting that they have been told that pay rates will not increase to compensate for their lower take-home pay. If the Off-Payroll Tax does come in, then thousands of contractors will be asked to pay their clients employment tax bills, without getting the benefits of employment such as sick and holiday pay and a pension contribution. Others will simply be told they are not wanted and struggle to find work. Some highly skilled contractors are reporting they will emigrate as a result.

Other firms are already actively looking to move to using offshore workers, as opposed to British based workers, to avoid the changes and costs altogether, meaning HMRC will not receive any tax at all.

These announcements from leading companies further exposes the disinformation from the Treasury and HMRC, who have claimed that the changes will not affect the self-employed and will not damage business, having also denied the evidence that shows that the Off-Payroll Tax has had a damaging impact in the public sector.

There is a real concern that many large companies will respond by declaring all contracts “inside IR35” mirroring the unlawful blanket assessments that have been commonplace in the public sector since the changes were introduced in 2017. This could lead to a loss of skilled workers, with real concerns of shortages of key staff in the private sector, as has happened in the public sector (something also falsely denied by the Treasury).

The Off-Payroll Tax, due to arrive in April 2020, is currently in the Draft Finance Bill and so far the current Treasury have ignored serious concerns expressed in the sector. However with the current political turmoil and the increasing opposition to the damaging changes in Parliament, there is every chance that the changes will not be introduced this year, in time for April 2020. All self-employed workers, recruiters and businesses should support the Stop the Off-Payroll Tax campaign and meet with their MP to get them to drop these damaging plans. The campaign asks that a review is commissioned as to how to best recognise self-employed workers in the tax system.

38 MPs have signed a Parliamentary motion calling on the Government to drop the plans and now the legislation is published, many more MPs are waking up to the damage that will be done by the Off-Payroll Tax.

Recently 11 leading organisations in the contracting and freelancing sector wrote an open letter to the Prime Minister and Chancellor, asking them to stop the Government’s ‘War on Contracting’ and drop the Off-Payroll Tax and the Loan Charge and instead work with the sector.

Commenting, Dave Chaplin, Director of the Stop The Off-Payroll Tax campaign said:

It is now clear that already large firms are laying off self-employed workers and pushing others into potentially non-compliant positions. Workers are already being told they’re not wanted and others are facing significant drops in take home pay.

This is the inevitable and predicted outcome of the damaging Off-Payroll Tax and demonstrates that the Treasury and HMRC have been misleading MPs and denying it would have these kinds of negative impacts.

It defies belief that this Government continues to wage a war on contracting, but there is still time to stop the Off-Payroll Tax as this misguided policy isn’t yet the law. With the current political turmoil, there is every chance that the changes will not be introduced this year, in time for April 2020. So all contractors, recruiters and business are urged to support the Stop the Off-Payroll Tax campaign and persuade MPs to drop these plans and instead commission a review as to how to best recognised contracting in the tax system.

Campaign contact details

For campaigners who wish to sign up to support the campaign:
Twitter: @stopoffpayroll

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