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Members of Shout99 have been asked to give their experiences which can form part of the Conservative's understanding of the effects on the sector. They will be monitoring comments and opinions posted on Shout99.
David Greene of accountancy service provider, Nasa Consulting, who has been working with the Conservative Party on this issue , writes:
Theresa Villiers, Shadow Chief Secretary to the Treasury, has been inspecting Labour’s MSC legislation and is raising issues with its far reaching proposals. The legislation is due its next debate on the floor of the House of Commons next week and its first debate this week was not all plain sailing for Labour. Among the questions raised was whether the new legislation prevented Personal Service Companies (PSCs) outsourcing some of their admin services to specialist providers. Whilst labour stated PSCs would not be affected by the new legislation, this is staggeringly different to what the legislation itself suggests and shows just how much more work needs to be done on defining it.
Without trying to be to alarmist, the proposals put forward by the Treasury are that all freelancers using a specialist company to assist with the running of their PSC will have to pay full PAYE, employers and employees National Insurance on all of their earnings, as if caught by IR35! Whilst some accountancy businesses have said they are not affected by the proposals, others have simply packed up their bags and started taxing all their freelancers as employees.
What Labour is not taking on board is that freelance working requires very specialist skills to support the legal and accountancy needs of the PSC. Neither law firms nor accountancy practices have the economic skills to carry out the range of services required by a PSC, including the crossover skills required to determine legal IR35 status or the related tax computations.
It does in fact appear that as Labour is losing the battle on IR35, so they are trying to support that legislation with a wide reaching MSC proposal. The other institution that is not in agreement with Labour’s effective employee treatment of all freelancers is the UK legal system. Recent very high profile court cases (James v Greenwich Council Ltd 2006 and Craigie v Haringey Council 2007) have clearly removed agency workers from an employment relationship with the end client. This removes all employment rights, rewards and protections from freelancers and yet the MSC legislation is seeking to impose full employment costs on them.
Problems
Some of the problems raised by end clients, freelancers and agencies are:
- If all PSCs are forced to pay PAYE taxes, most freelancer workers will find it uneconomic to provide the interim, short term and intermediate services that many clients need to roll out projects and fill short term requirements.
- Freelancers are not able to trade under a self employed badge when working finding work through agencies. They now cannot trade under a managed service company and if they cannot trade through the legal protections of a limited company, it is simply not possible to trade as a freelancer.
- Freelancers are not able to carry out the corporation tax computations, IR35 employment status tests, payroll and dividend requirements, company reporting legislation and as pure Accountancy and Law firms do not have the skills, who can they turn to if specialist support firms are not available?
- Whereas large corporate firms can outsource their finance and admin functions around the world, the proposals prevent small firms from doing this in our local market.
- Pension contributions will become difficult for freelancers as whatever they have left after tax will be needed for living on and trading, rather than investing for their future. The tax reliefs for corporation pension contributions will become ineffective, nullifying the A-Day pensions changes.
With support, the MSC proposals that capture all PSCs as being subject to full PAYE taxes could be removed and freelances be free to choose who carries out their companies support services. The legislation has several months before it is determined in its final form, making this a critical period for the recruitment sector and all freelancers who choose to trade through their own companies.
The next Parliamentary stage is for the legislation to be debated in detail before a specialist committee of MPs. Now that the Conservative Treasury team has identified problematic areas, they are requesting case studies of freelancers affected by the proposals. Please post any personal concerns/experiences you have here or email Shout99's editor for the attention of the Shadow Cabinet Minister Theresa Villiers.
David Greene
Nasa Consulting
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The Editor
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