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IT contractors raise alarm over HMRC mulling 'one-month' nudge onto payrolls

'Unhelpful to be sprung on us like this', says freelancer group

HMRC photo, Gov.uk

Freelance IT workers in the UK have expressed concern about claims that the government plans to force contractors onto the payroll of their clients after just one month of service.

It was reported over the weekend that Chancellor of the Exchequer George Osborne would crack down on personal service firms during his spending review statement to MPs on 25 November.

Lobby group IPSE – which represents Blighty freelance and self-employed folk – told The Register that it had been unaware of a one-month rule that is apparently being considered by Whitehall.

If such a measure is brought in, then it's been claimed that any consultant (IT or otherwise) would be required to shift over to a company's payroll if they are doing contract work for that business for longer than one month.

IPSE spokesman James Gribben said, when asked if the group had been blindsided, that the plan was "quite alarming" and added that it was "very unhelpful [for such measures] to be sprung on us ahead of the Autumn statement."

The group's boss Chris Bryce said in a follow-up statement that "limiting contracts to one month has never been on the table up to this point. It’s one thing to fly a kite, but this measure would have such catastrophic impact on business that it’s quite clear it shouldn't be considered at all."

He added: “The flexible labour market is at stake here. That same flexible labour market has helped us keep unemployment at record lows. The tax system should reflect how people in the UK work, not how HMRC wants them to work. This kind of measure could have a dramatic and devastating impact.”

El Reg understands that contractors who have sought clarity on the issue have been largely waved away by HMRC officials.

We asked the Treasury and the taxman to respond to this story. The Reg wanted to know if there was any veracity behind that one-month claim, especially given that no mention of it is made in the government's recent IR35 paper.

However, HMRC had not got back to us at the time of publication. Number 11 declined to comment.

On existing legislation the government had this to say in July:

There is a growing body of evidence which suggests there is significant non-compliance with the current rules. The number of people paying tax under IR35 has remained fairly static since it was first introduced.

However, there has been a substantial increase in the number of PSCs (personal service companies) during the same period. The government estimates that there were around 265,000 PSCs in 2012-13, an increase of 65,000 on the previous year alone. This number is expected to continue to increase.

The IPSE has encouraged freelance workers to complain to their MPs about the "payroll after one-month" claims.

Devastating blow to Blighty's freelance workers

One IT contractor, who preferred to remain anonymous, told us:

The majority of the work I chase fall into two categories, short term (typically two to six months) work, where a client has a deadline to hit, and not enough bodies on the ground, and need people who can hit the ground running and get the job done.

"The others are longer term, but often sporadic. I'll be commissioned to build an app on a Time & Materials basis, and then they'll come back to me for bug fixes, feature requests. The actual 'contract' may well be 18 months+ but the work portions tend to be two to six weeks long."

He added: "If either of these were to fall under these proposed new regulations, then the likeliness would be the latter work would just disappear altogether. Typically, such companies just cannot afford to have highly experienced (if indeed any) engineering staff on a permanent basis, and often by the very nature of their own business, work for such staff would be sporadic."

Our source continued: "No one is going to pay devs to sit on their arses for weeks on the off-chance of a new project getting funding!"

Such rules could also lead to freelance folk having to deal with even more paperwork, we were told, if they are forced to take permanent jobs for each new contract.

"I mean, just think of all the P45s, P60s, etc I'd have to sift through for the annual self-assessment! Not to mention all the shiny new workplace pensions I'd have to join, then leave, and keep track of until I finally decide I've had enough," our source said.

Simon Judge, a highly-experienced mobiles apps contractor who specialises in Android design, development and consultancy, told The Register that he believed such a plan would be unworkable for HMRC.

"If it's implemented it will change how freelancers work in the UK – not just IT but ALL industries. I guess most freelancers will take the easier route, go permanent and the flexible workforce will disappear."

All eyes on Osbo's spending review later this month, then! ®

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