A Government clampdown on ‘off-payroll’ workers could change the way that companies use freelance workers and contractors.
According to leaked reports, chancellor George Osborne is due to outline plans to reduce tax avoidance in this month’s Autumn Statement.
The measures, which have not been officially confirmed, are expected to result in a heavy clampdown on paying individual contractors or freelancers via an ‘umbrella company’ or ‘Personal Service Company’ (PSC), which usually results in them paying a lower rate of tax. Currently by using that mechanism, the client company that they do their work for can avoid having to pay PAYE costs.
Reports indicate that the proposed tightening of the rules could force employers to move contractors and freelance workers onto their payroll when they have worked with them for longer than a month. However doing so would create substantial administrative complications for any company that utilises third-party workers.
Julia Kermode, Chief Executive of the Freelancer and Contractor Services Association (FCSA), said that the biggest concern of the proposals is that businesses will stop using contractors and freelance workers altogether. “There are some 4.6 million self-employed workers in the UK who will have to go on the payroll of each of the clients they work for after a month if this legislation comes into force.”
“That is a huge administrative burden for UK PLC who will suddenly find themselves having to deal with a significant amount of workers on the payroll – and if they are on the payroll and being taxed as employees will they be entitled to all the statutory benefits that come with being an employee? It’s simply not workable.”
HR Solutions’ Senior Consultant Gill Howells suggests caution to any business looking to hire off-payroll workers in the near future. “The Government is going to take a dim view of anything it considers to be a disingenuous avoidance of tax and NI contributions. It may not happen immediately but this tightening of restrictions is likely to come about sooner rather than later.”
“If a contractor or freelancer is working solely for you for an extended period of time, you should start to consider what the implications would be if you had to treat them as an employee. Pensions auto enrolment, holiday entitlement, paid sick leave and working time are all factors that you will need to think about.”