The dust is beginning to settle over the news that the government itself owes millions of pounds worth of money to HMRC.
This is due to unpaid tax around the recent IR35 reforms. The situation is rather farcical and shows how the IR35 reforms are affecting everyone in a less than positive way. Even the government is seeing an impact.
Unsurprisingly, this information has not gone down particularly well with the government or other businesses. Neither is it a good message for the public, that their own government cannot properly manage this situation. It gives a poor impression for anyone hearing this without knowing much about it.
One of the areas with an issue is The Department for Work and Pensions, which owes £87.9 million to HMRC. This is a huge amount of money to be in arrears. DEFRA, the Ministry of Justice and the Home Office are in similar situations. Well, perhaps the dust is not settling after all and there are more issues arising.
There is a whisper going around that public sector bodies are not happy. They are unhappy with both the fact that there are compliance failings and penalties, as well as the wider perception of this. Therefore, there is the thought that they are now changing rapidly to be far more risk averse.
This spells out trouble for contractors and SMEs who interact with parts of the government.
Many government departments may well have made tweaks to their hiring policies by now. Unwilling to risk being in the same boat as others, they are enforcing bans on hiring contractors in some areas. There are claims that some of the departments have quite literally let SMEs go to avoid IR35 complications.
With this kind of policy, they now have no need to carry out status determinations. They have let go of those that need them and cut them loose. If so, it would seem that the public sector is terrified of making more mistakes in this area. Banning these organisations takes away a significant area of concern.
It basically removes the problem with apparent ease. Perhaps this is true for them, but what about the contractors and SMEs? They are losing out through no fault of their own.
It is completely understandable that government departments are being cautious about IR35. However, this is surely an unintentional fallout of the changes. They are giving organisations a range of concerns about doing determinations wrongly. Also, there are issues around who makes the decision and whether they have enough information.
This could well put a stop to SMEs working with the public sector and government departments. It would definitely be a shame as the wealth of knowledge and expertise they can offer is great. Cutting contractors and SMEs out of this work will make it less good for all concerned.
Perhaps there can be some happy medium found without the IR35 issues. Hopefully the government will intervene and help to find some common ground.
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Will Contractor Issues Affect the Next Generation?
So, IR35 changes continue to affect freelancers up and down the country. To this, there is no definite end in sight.
The system as it stands can cause additional taxation for contractors. It can lead to jobs being taken away or given only under certain circumstances. Organisations can force contractors to use only one of the umbrella companies they have given their approval to, that are on their preferred suppliers list.
They can be left with unexpected tax bills, they can be wrongly categorised – the list is endless. With this in mind, what does this mean for the next generation? Will they look at the broken system and decide that it is preferable to have a job?
If you consider the issues that have followed Brexit, COVID and now IR35, they have compounded problems for contractors. There seem to be no lucky breaks and no magic answers to the issues. It is unsurprising that a number of contractors have decided either to go back to employment or leave for faraway shores.
As we often say, contractors are a vital part of industry. Freelance work of this nature improves economic growth. They provide an excellent and essential service to businesses in all kinds of industry.
This is often to solve specific problems when taking on a permanent employee is not appropriate. They are also useful for using up short-term funding or small grants when it is not practical to get an employee to work on it. They provide an important service.
Bearing this in mind, it is something that people take on for a variety of reasons. Some people make a decision at a set point in their career to become a contractor. Others fall into it as a kind of lifestyle choice to fit around other things they do.
Some people see it as a way to experience more freedom in their lives to do only what they want to do. However, it is not the easiest option to choose. There are lots of risks associated with following this kind of career.
One for example, is that you can never guarantee the work and could have periods of time without work. With all these issues piled on to an already challenging line of work, will the next generation want to take on all these risks?
The next generation are growing up in an environment where gig working is becoming more normal. Freelance work is often a ‘side gig’ to some people’s income as well as being the full workload for others. This environment is not unusual to hear about now.
Therefore, perhaps it is not much of a big step to be a contractor. For specialists in areas such as IT and the creative industries, it will likely continue to be a way forward for some. Perhaps this time of rapid change will make future contractors more resilient to change.
Maybe then, things will begin to level out and make contracting in the UK better and less volatile over time. Recent graduates are the next generation and need a friendly economy to work within.
