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If it's unlucky, HM Govt. may well achieve worker parity

freelancesupermarket.com newsroom

RSS 29 July 2015
The government has taken strong moves to shift the burden of responsibility of employee eligibility on two counts. First is news of £30M in fines to agencies and employers for taking on illegal workers. Second, in conjunction with the dividend hike and relaunched IR35 discussion document, employers must now vet freelancers’ and contractors’ tax liability before paying them.

Cracking down on illegible workers

At face value, figures obtained via the freedom of information act suggest that employers and agencies are taking the hint about employing those illegible to work in the UK. Between 2013/14, the government issued 2,148 NOLs to culpable employers. Last year, that figure dropped to 1,974.

A move in the right direction? Not when you consider that in 2012/13, the government only issued 1,270 NOLs in total.

It was giant group who requested the information in the first instance, with a follow-up summary on APSCo.

Matthew Brown, giant's MD, was not convinced that the figures demonstrated any improvement. And this despite the government doubling the maximum fine for those caught from £10,000 to £20,000.

The total of the civil penalties last year equates to £29.6M. Yes, it's welcome income for the government. And here's the rub: the average employer's ROI for a UK employee is £50,000. If you're in the blossoming motor industry, each worker returns a value of £100,000 per head to the business.

In his summary, Matthew Brown suggested that "a lot more needs to be done" to dissuade employers from taking on illegible workers. Perhaps a fine capped at the average ROI per sector would be a great incentive for rogue bosses to toe the line.

Could freelance accounting be a thing of the past?

Okay. It's obvious that the Conservative government hasn't got a Scooby Doo about self-employment. We've had the dividend tax-free allowance reduced to £5,000. IR35 is about to have an unprecedented makeover; what the legislation will resemble afterwards no one can tell.

To lay further barricades across the road of successful self-employment, the Chancellor looks like he's attacking independent professionals from another angle. In amongst the new proposals is shifting the burden of self-assessment from the self-employed individual to the employer.

The market has long held the belief that 20% of limited company contractors are genuine, 20% are definitely not and the middle 60% in the grey zone. HMRC is now disputing these figures, suggesting that 90% of limited companies owned and directed by contractors are, in fact, not genuine at all.

What's the aim of the reforms?

The Chancellor is waging a war against the very sector that has pulled the UK economy out of the fire that grips Portugal, Italy, Spain and Greece. Self-employed professionals, in the main, contribute a minimum of 15% of their income to the Treasury.

The aforementioned countries would snap your hand off if you offered them 15% of everything you earn. And bear in mind, many IT Contractors, Oil and Gas workers and specialist medical staff earn 6-figures.

This isn't small fry, but still the government wants to cast its net deeper.

The fact is, creating your own limited company and going it alone takes massive testicular fortitude. Yes, even for the thousands of female solopreneurs cutting it with their male peers.

You abandon reliance on an employer for all the things employees take for granted. Sick pay, 22 days holiday a year, company car, all office supplies and IT infrastructure provided (and maintained). The list goes on.

The way the government is pushing employers, there'll be little difference between an employee and a freelancer. At the minute, there are huge differences that make the relationship advantageous to both parties.

But it's not all about the money…

Where will the advantages be for risking everything setting up your own company? Where will the benefit be for the employer, who can hire a freelancer to fix a short-term problem, pay them and that be the end of it?

They'll have to keep records, check the independent professional's tax status and deduct their pay accordingly. That's without the fees agencies charge, if that is indeed the route to the assignment.

The government is trying hard to highlight the similarities between contractors and employees where they exist. Should the government be successful, it will put huge pressure on the labour market.

All those self-employed people giving up the limited company payment structure because it's not worth it will have to find gainful employment somewhere. 131,000 people left self-employment in June alone.

…but for sure, budget plays a crucial part

The other problem is, many of today's assignments - in this technology-driven world - are short term in their nature. Businesses have flourished because the flexibility the independent professional has brought to the market. That flexibility will disappear.

In its place, you will find only specialists conscious of the fact that demand is greater than supply. Like any market sector where that equation reigns, they'll increase their costs in accordance.

Those smaller businesses who've had a symbiotic relationship with freelancers? They'll fall off the pace as costs to remain competitive become inhibitive.

The government is looking to eliminate the advantages of setting up a limited company. If it's really unlucky, it may just succeed.


image credit: iosphere, freedigitalphotos.net

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