What new rules on contingent workers could mean for business

and why it’s imperative for business to join the consultation

Pete Holliday, Managing Director, Sopra Steria Recruitment for Bdaily

According to ONS data, the number of contractors and others working on a self-employed basis in the UK is now close to five million – representing around 15% of the entire workforce and a rise of 1.5 million since 2001. There is no doubt that this increase in demand is aligned with a growing realisation among business leaders that contingent workers allow them to access specialist and hard-to-source skills which enable innovation and growth - without impacting permanent headcount costs.

However, proposed changes to the way that contractors working in the private sector are categorised, and subsequently taxed, have the potential to influence not only this access to talent but also long-term business productivity and profitability.

A government consultation document on off-payroll working in the private sector, published by HR Revenue & Customs and HM Treasury, proposes measures to tackle non-compliance. The deadline for responses is the 10th of August 2018.

The paper outlines three options. The first – ‘extending public sector reform to the private sector’ – essentially means that business users will need to assess the tax status of every PSC contractor that they engage, and that their suppliers will need to act in the outcome including paying HMRC the relevant ’employment taxes ’.

However, despite the possible backlash around reforms in this area, there seems to be a general lack of awareness around the current consultation, even among businesses which rely on the skills and expertise of professional contractors. Conversations with clients have led me to the realisation that, for many businesses, this consultation remains under their radar. Which is why I’m urging all businesses which use contractors to review and respond to the paper to ensure that their voices are heard before it is too late.

Following changes to rules around off-payroll working in the public sector - which were introduced in April 2017 - it was widely reported that organisations faced severe challenges in implementing processes and systems in the allocated timeframe. The impact that these changes had on not only public sector organisations, but also thousands of individual contractors and those supplying them was huge - yet the original consultation attracted just 300 responses.

Six months after the public sector roll-out, the Association of Professional Staffing Companies (APSCo) reported that 70% of recruiters had witnessed the number of available contractors decreasing since the changes. In our own experience, around 20% of the public sector clients we work with lost contractors as a result of the changes. However, this is just a snapshot of a much wider issue. It has been reported that 80% of IT projects in the public sector, for example, have been delayed as a result of the new rules. Clearly, this evidences that the impact on the private sector could be significant.

Research commissioned by HMRC reveals that almost a third (28%) of central bodies reported that the reforms had led to them increasing the gross hourly rates paid to off-payroll contractors. But how significant these rises were was not recorded, and this was not highlighted in HMRC’s easily digestible ‘factsheet’.

Nor was it reported that the CEST employment status tool, which is now habitually used to determine the status of public sector contractors, is fundamentally flawed, demonstrating a 50% failure rate based on case law. It’s imperative that we do everything we can to ensure the private sector doesn’t have to contend with such challenges.

Contractors are valuable – they inject skills and drive projects – that’s why companies use them. Businesses don’t bring on board flexible talent so they can become tax assessors for contingent workers – which may be the case if these proposals sail through unchallenged.

The Association of Independent Professionals and the Self-Employed (IPSE) has labelled the current consultation ‘anti-business’ and warned that proposed changes could be a ‘fatal blow’ to Britain’s flexible economy. Business leaders can influence the outcome, but the clock is ticking.

In Sopra Steria Recruitment’s response to the consultation, we proposed an alternative to the suggestions put forward: to ensure administration associated with any changes is as simple as possible, HMRC should use the data already provided by ‘agencies’ through employment intermediary reporting to track down all workers operating as PSCs and receiving gross payments. This data also provides HMRC with the client details of where each worker is engaged. We also recommend that HMRC issue a CEST questionnaire to each worker, demanding verification by the client and worker for issue to HMRC so that it is able to assess tax status directly from the PSC for each worker, on a monthly basis.

While we endorse HMRC’s intentions to eliminate non-compliance, you have to ask how they can make an informed decision on future legislation if the business community, who are best placed to educate them, don’t engage. Ultimately, these proposals threaten the very nature of flexible working in the UK.

Yes, the consultation document is lengthy and detailed, but it is worth noting that any response to the Consultation is a good response. Time is not on our side: there is just a week to go until the consultation closes. However, if you are one of the many who relies on interim professionals, it’s not too late to ensure your voice is heard by sending your views to HMRC and HMT.

More details on the consultation can be found here