Self-Employment must be enshrined in law

The Government must enshrine in law, for once and for all, the difference between contract service providers and employees, in order to bring to an end the current raft of confusing, misleading and unfair taxation legislation. That is the view of Barry Roback, Chief Executive of JSA, the UKís number one specialist accountants for IT contractors.

In the light of the current attempts by The Treasury to close down managed service companies and its inconsistent attacks on the ìself-employedî white collar professional, Roback believes that there is an urgent need to clarify and codify the legal status of contractors and to differentiate between low-paid contract workers and those providing professional services.

According to Roback, Treasury officials seem unable to distinguish between service and employment contracts and have become fixated with the idea that people mainly become contractors in order to pay less tax than those in permanent employment. Therefore the thrust of recent legislation, particularly relating to IR35 and MSCs, has been to try to apply PAYE principles, with all their ramifications, to service contracts. The HMRC seems unwilling or incapable of recognising that the vast majority of contractors are service providers, and should be treated as such, rather than as employees, for tax purposes.

ìGovernment officials appear reluctant to accept that contractors take on an economic risk by absolving employers from most of the obligations they have towards their permanent employeesî Roback points out. ìTherefore contractors are entitled to charge a premium for their services, as they are never guaranteed a continuous flow of work in the future.î

Barry Roback says that Government officials seem to have a philosophical mindset that cannot accept that anyone who works at a desk with a computer can possibly be providing a service. ìThey seem to think that unless you wear an overall and have a box of spanners, you must be in conventional employment. We have tried on many occasions to persuade them that the vast majority of professional contractors make a lifestyle choice to provide services to end-users, rather than pick up a monthly pay chequeî.

JSAís recently published annual Contractor Expectation Survey revealed a generally high satisfaction rate with contracting, with only 18% of respondents saying they would like to return to full time PAYE employment. On a scale of 1(being very unhappy) to 10 (being extremely happy) as a contractor, 77% rated themselves at 7 or above.

ìWe have explained over and over again that they are not employees, but self-employed contractors,î he continues, ìand that they expect to be called in by organisations, only when their expertise is needed for a specific, short-term reason. They do not want or expect the protection offered by full time employment, but they are entitled, in exchange, to be accepted by courts and legislators as service providers and be treated, in taxation terms, accordingly. Government officials find it hard to accept that contractors enjoy the different challenges and, variety of clients work they work for.î

However, argues Roback despite the fact that the Government has made it clear that it is deeply suspicious of anyone who operates outside PAYE, the fact remains that contracting is here to stay and is certainly going to grow in the next decade. ìThe UKís economic success has been built on a flexible labour market, and it is hard to fathom why the Treasury is so determined to undermine this advantage. It is vital, therefore, that there is a commitment from the Government not to allow employment rights to intrude into commercial relationships.î

He warns, however, that with rewards come risks, and if they are to hang onto their IR35 exempt status, contractors should resist the temptation to work under contracts that protect their ëemploymentí rights, even if it does give them an added sense of security. Contractors increasingly have to justify their status to the Inland Revenue and they should use every legitimate device to prove their status as a service provider.

ìSimilarlyî concludes Barry Roback, ìend-users must acknowledge the benefit they gain from the availability of high quality professional contractors in the UK market. For a number of years, the British economy has kept its competitive edge by adopting more flexible employment practices than other European countries. This has meant a rapid growth in the contractor market, enabling businesses to respond rapidly to expansion as well as down turns in their particular markets. This flexible market has also been extremely beneficial to the recruitment agencies that specialise in providing high-end contractors.

ìTherefore it is up to contractors, agencies and end-users alike, to defend their corner and call a halt to the current rash of misguided and mistargeted legislation aimed at the self-employed. The Government must be persuaded, for once and for all, to define in law what it means by self-employment. If it does not, we can expect son and grandson of IR35, and no doubt several siblings into the bargain!î