Self-employed will strike back at the ballot box unless 'tax bombs' end: Dave Chaplin
All it does is shackle those wanting to be their own boss and impede UK growth.
The chosen method of these self-employed bombers is a device called “deeming provisions”, where HMRC gain powers to override the longstanding principle of the freedom to contract.
The first siren sounded in 1999 when the then Inland Revenue (now HMRC) signalled its intention to crack down on “deemed employment,” colloquially referred to as “IR35”. The first tax bombing raid began in April 2000 as HMRC launched its first missile in the two-decade story of oppressive taxation – the Intermediaries Legislation.
In a nutshell, when firms hire contractors, they don’t have to pay employers’ National Insurance of 13.8 per cent, nor do they have to give them rights – because they are not employees. This unimpeded access to on-demand flexible talent is the growth engine of the UK economy, but the Treasury views them as tax avoiders. The Intermediaries Legislation made contractors responsible for determining their own “employment status for tax purposes” and liable for unpaid tax.
But by 2011, after losing five successive cases in a row at the tax tribunal and failing to win more than half of all cases, HMRC appeared to abandon their bombing runs.
But, desperate for money, in 2016, the tax bombers began designing a new deadlier weapon, labelled “Off-payroll working”, for which they used the public sector as a test site.
This time, the onus was on the firms to determine the contractor’s tax status and carry the tax burden. But the bomb was designed so that if the firm got it wrong, the amount of tax owed was often four times the perceived tax loss.
With many contractors on their books and given the subjectivity associated with determining their tax status, many firms decided to eject them all.
The threat made businesses ban the highly talented, on-demand, flexible workforce, leaving no choice but to put them on the payroll.
HMRC pushed the Government to unleash its new weapon on the private sector in April 2021. Not surprisingly, it had the same effect. Hundreds of thousands of genuinely self-employed people had their livelihoods damaged
But in September 2022, the then newly appointed Chancellor, Kwasi Kwarteng, announced plans to repeal the off-payroll working rules from April 2023. The Conservative Party were decommissioning the dreadful weapons of mass self-employment destruction as part of its pro-growth agenda.
Over the next 24 days, businesses and the self-employed rejoiced whilst nervously waiting for the next Finance Bill, which would cement in statute the scrapping of the arsenal called Off-payroll.
But, alas, after political chaos in the UK, a new Chancellor announced that the weapons would remain.
Until Finance Bill 2024 is passed, however, we continue with horrendously flawed tax laws that arguably do not increase revenue, drive businesses and people offshore, and open the door to dodgy tax schemes that threaten the Exchequer more than the self-employed ever did.
While the war continues, the self-employed are preparing themselves with voting papers. The incumbent Government will face a battle because the people who want to keep their right to be their own boss are fighting back.
Dave Chaplin is founder of tax compliance firm IR35 Shield and the ContractorCalculator website