The contractor and freelancer world have been all atwitter these past few weeks after it was revealed that Student Loans Company Chief Executive Ed Lester received his pay through a limited company despite being an obvious employee of the firm. This is in stark contrast to HMRC’s stance on so-called disguised employment – which contractors and freelancers will know all-too-well in the form of IR35.
The embarrassing revelations prompted swift action from the Treasury, who announced the same day that Lester would henceforth have his income tax and National Insurance Contributions deducted at source, in the same way a regular employee would. However it was soon discovered that many highly-paid executives at the Department of Health also operate similar arrangements through their own limited company, prompting speculation the practice could be widespread in Whitehall. Similar deals have since been uncovered at HMRC and the Office for Tax Simplification – ironically, the department charged with reforming IR35.
The revelations have understandably caused outrage amongst the general public. Contractor and freelancer groups have been especially vocal on the issue, as it would seem the regular rules don’t apply to senior civil servants – whereas contractors have to deal with the prospect of an IR35 investigation on a daily basis.
There have been some moves towards damage limitation from the PCG, who are worried that press coverage of the scandal will tar all one-person limited companies with the tax evasion brush, and unfairly impact contractors who have been legitimately plying their trades through a personal service company for years.
The PCG issued a statement saying people should “avoid hysteria being introduced into the debate surrounding the role of limited companies in the UK economy.” Chairman Chris Bryce said:
“It is fundamentally inaccurate to brand all one-person limited companies as employees attempting to avoid tax. The Prime Minister himself has praised freelance workers and said they make a valuable contribution to the nation’s economy.
“We must ensure we do not create an orchestrated witch-hunt against the nation’s smallest businesses that will damage public and private sector growth in the UK. [...] One-person businesses are a legitimate model and the labour market flexibility they provide is vital to the economic recovery of this country.”
The PCG are particularly worried that highly-paid (and highly-sought after) consultants and IT professionals may shy away from public sector contracts for fear details of their remuneration may be exposed in the press in the name of exposing fraud – when in fact their are legitimately in business on their own account. Similarly the current furore surrounding the use of limited companies in public bodies may have a cooling effect on the hiring of contractors and freelancers in the public sector – traditionally a huge source of work.
Stuart Davis, Chairman of the Freelancer and Contractor Services Association commented:
“At a government level, the importance of a flexible workforce is misunderstood. They tend to operate a ‘one size fits all’ mentality.
“There is the danger of politicians shooting themselves in the foot if their comments are not well thought out and properly considered.”
Photo by Vince Wingate