Tin-Eared Treasury publish plans to slash pay for 150,000 skilled workers with the Off-Payroll Tax despite huge opposition

15 Jul 2019

The Government and HMRC have ignored the findings of their own consultation and are pushing ahead with the controversial Off-Payroll Tax roll-out to the private sector. The Off-Payroll Tax will see at least 150,000 self-employed individuals facing up to a 20% pay cut – which could mean a significant drop in income and some families unable to pay their mortgages.

The Off-Payroll Tax is in reality a new “double stealth tax” – on businesses and contractors which will slap a huge 14.3% new tax on UK businesses that use contractors. The ‘fee-payer’ (hiring firm or agency) must now pay employment taxes on top of the payment made to the contractor. This means additional tax of employer’s National Insurance (NI) (13.8%) and the Apprenticeship Levy (0.5%). HMRC have said that 170,000 self-employed workers will be affected, with 90% (153,000) of these facing cut in pay due to the new rules.

These huge extra costs mean businesses will slash pay for contract workers or as is now already happening, they will outsource skilled work to offshore providers to avoid the new rules. Contractors will be forced into false employment when they receive none of the benefits of employment and still have to fund their own pensions, holiday and sick pay.

The Treasury are doing this, at the bidding of an out-an-control HMRC, despite huge opposition from businesses, the freelancing sector and clear evidence of the damage it has done in the public sector, including the NHS. Campaigners and MPs have criticised the Government for waging a ‘war on contracting’ and undermining the UK’s flexible economy by pushing skilled away from UK contractors to other countries.

The Treasury have published the draft legislation of its Off-Payroll private sector proposals as part of the provisions for the Finance Bill 2020. The serious concerns raised during consultation having been disgracefully ignored, something that has happened before over the public sector IR35 reforms and the Loan Charge.

The publication of the draft legislation comes less than two months after the conclusion of HMRC’s latest Off-Payroll consultation. Responding to this, industry stakeholders had expressed grave concerns over many fundamental issues with the existing public sector regime and HMRC’s private sector plans, concerns that have been ignored in another example of a chronic lack of evidence-based policy-making by the Treasury. The Treasury was called tin-eared by Conservative peer Lord Forsyth of Drumlean who is Chair of the influential House of Lords Economic Affairs Committee that scrutinises Treasury policy.

Already large firms are telling contractors they will not be needed from next April, when the changes come in and some have already told contractors they will be replaced by offshore contractors based in other countries. Yet the Treasury and HMRC continue to mislead people, deny the evidence of this new tax and erroneously claim, despite overwhelming evidence, that the plans will not affected contracting rates or businesses using them.

The Treasury and HMRC have already been accused by a vast number of MPs of carrying out a ‘campaign of misinformation’ over the Loan Charge and their evidence-ignoring denials of the impact of the Off-Payroll Tax is more proof that they cannot be trusted – something which warrants proper investigation and scrutiny.

The Stop The Off-Payroll campaign is calling for the legislation to be paused and instead for the Government to sit down with the sector and work out the best way to recognise contracting and freelancing in the tax system, including the important principle of being treated as an employee for both employee rights and tax purposes if a person is classified in law as an employee.

Already over 30 MPs have signed a parliamentary motion calling on the Government to drop the plans and on Tuesday 9th July, the Stop The Off-Payroll Tax campaign went to Westminster to lobby MPs about the damage these plans will do and the fact that Treasury Ministers are misrepresenting the facts to Parliament.

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

It’s alas no surprise that the Government is still planning to bring in the damaging Off-Payroll Tax, despite the evidence, part of this Treasury’s ‘war on contracting’. As predicted, this tin-earned Treasury have ignored all the serious concerns expressed by the contracting and freelancing sector, so once again an HMRC consultation has proved to be a costly sham with them paying no heed to what experts and ordinary contractors have to say.

To introduce the Off-Payroll Tax to the private sector will see many contractors pay rates slashed, with some losing more than their monthly mortgage payments. It will also see skilled work pushed abroad, something that contractors are already reporting, yet something else cynically ignored by HMRC and the Treasury.

It is time that contractors, British business and MPs woke up to how damaging these plans will be and we only hope that the next Prime Minister and Chancellor stops attacking contracting and instead supports the UK’s flexible economy.

Julia Kermode, Chief Executive of the Freelancer & Contractor Services Association (FCSA) and a supporter of the Stop The Off-Payroll Tax campaign said:

The reforms will be devastating for the UK economy and I would urge our next new Prime Minister to take a sensible look and a sensible view before pressing ahead with these damaging proposals. The UK’s economy is in a delicate state right now and these reforms will do little to alleviate the UK’s problems.

We know from our lobbying activities that Government and policymakers do not understand our sector or fully appreciate the implications of their policy decisions and today’s draft bill confirms this. They claim to have listened to stakeholders’ concerns, but today’s bill simply highlights that they have simply paid lip service to listening.

Supporters of the Stop The Off-Payroll Tax, Chris James of the JSA Group said:

“With Brexit still in the air, and the UK trying to keep international business based here, there couldn’t be a worse time to introduce this legislation – it appears to be a vanity project.

Many consultations responses questioned the timing of the reforms, given that Brexit is delayed and that other employment status reforms are still in progress. On this point, the consultation response merely thanked respondents for their time, but ignored the concerns.”

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