The report by MPs slammed what it saw an an excessive use of 'personal service comapnies' by public bodies, particuarly the BBC. (See: Parliamentary Committee launches attack on freelancers - Oct 2012, Shout99)
The report criticised this way of operating and condemned HMRC for its lack of activity in this area - a situation which HMRC is going to rectify. There was also one line in the PAC's report which perhaps indicated the gulf that exists when it comes to Parliamentarians understanding the role of the modern-day freelancer, when it said that the public sector's continued reliance on temporary or interim resources was 'a risk to value for money."
Responding to the report, the Freelancer and Contractor Services Association (FCSA) wanted recognition for the legitimate and valuable work undertaken by many freelancers. It also acknowledged that HMRC was not properly enforcing IR35 and supported the Committee's call to strengthen enforcement.
Freelancer trade body, the PCG, saw the report as an indication that Government Departments could 'to ban the use of freelancers outright'. However, it pledged to continue working with the Government 'to improve the tax system' without using measures that ‘turn off the talent tap’.
FCSA - valuable
Stuart Davis Chairman of the FCSA, whose members are the large providers of services to freelancers, said: "Once again it is disappointing to see a respected Committee like the PAC criticise the use of freelancers and contractors in public sector organisation such as local government, the NHS and the BBC. As we have made clear many times before, there is nothing wrong or inappropriate for any organisation, including public sector bodies to engage contractors at any level, if done properly, for the right reasons and where those concerned pay appropriate taxes.
"We would like to remind the Committee and those who are criticising these arrangements, that freelance contracting work is undertaken by thousands of workers up and down the UK and is a legitimate and valuable way of working that benefits organisations and contractors alike.
"We do however welcome and entirely agree with the Committee’s concern that HM Revenue
and Customs is not properly enforcing the tax rules such as the current IR35 legislation. We believe that the right legislation is in place but that there is a failure to enforce it and we would support the Committee’s call for a strengthening of its enforcement."
PCG - ban
John Brazier, Managing Director of PCG has responded with a warning that rather than address the issue of a tax system that’s 'not fit for purpose', the report is in danger of making recommendations that could encourage Government departments to ban the use of freelancers outright.
He said: "It may be that current tax policy does not include appropriate provision for this way of working, which can give rise to tax avoidance opportunities for a minority, but the solution is not to outlaw freelancing wholesale within the public sector, as Margaret Hodge and her colleagues [on PAC] are dangerously close to suggesting within their report.
"The jobs market is changing, not just here but across Europe. The Government, rather than taking the retrograde step of attempting to push back against that change simply because it causes a few taxation difficulties, must develop a more sophisticated tax policy that changes with it. A tax system equipped to deal with 21st century working."
John Brazier says that PCG would continue to work with Government and all interested parties to improve the tax system so that the UK is able to keep pace with the change. He said: "Everyone should pay the right amount of tax. PCG has been and will continue to be robust on this issue and a simple, fair and easy-to-enforce system will ensure this happens. The Government is in real danger of damaging a vital way of working just because it refuses to put its thinking cap on when it comes to tax."
For detailed coverage of this on-going 'off-payroll' issue; IR35 policy and cases, see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2012