False self-employment: will it be enacted?

The Onshore Employment Intermediaries: False Self-Employment consultation document published on 10 December has sparked heated debate about yet more ill-considered legislation being rushed onto the statute books.

Many of our clients are asking what the chances are of this legislation being enacted as currently drafted.

If we look at the track record of consultations and legislation affecting intermediaries or self-employment over the past few years:

• The Managed Serviced Companies rules were announced in the same fashion as this back in December 2006, and then radically overhauled at the eleventh hour in March 2007 before their actual introduction (although there was a longer consultation period until 2 March 2007 in that case).
• The proposed rules on false self-employment in the construction industry in 2009 never made it into law.
• The ‘income shifting’ legislation, which much like this new legislation was proposed because HMRC lost a major case in court and considered it ‘unfair’ was shelved at the last minute.
• The recent offshore intermediaries legislation was changed fundamentally after consultation.
• Even IR35 was delayed for a year, and was the subject of a judicial review. It made it through the review and an appeal unscathed, but then most would agree that it can fairly be described as a disastrous piece of legislation for both HMRC and freelancers.

On the point of IR35,  there are many comparisons to be drawn with this new draft legislation. Just like IR35 it has been announced in a fanfare championing employment rights, yet it will give nothing to workers and will probably leave them worse off. It is drafted widely and will not only hit its target but will clearly entangle the genuinely self-employed. It will leave advisers and taxpayers scratching their heads when it comes to filling in tax returns: there will be confusion as to whether they are employed or self-employed for other purposes, for example VAT.

This last point (and the current Lords Committee review of IR35) may be in the minds of Parliament when it comes to passing this into law. Do HMRC want another IR35-type disaster on their hands? There is also likely to be extensive lobbying from the construction industry – major contractors price labour for large contracts sometimes years ahead, yet this legislation could massively increase costs from April 2014.

In summary we are giving even odds on this legislation ending up on the statute books pretty much as drafted, 5-2 on it being amended fundamentally, and 10-1 on it being ditched. Anybody fancy a bet?

The implications of this proposed new law are very different for self-employed intermediaries, other intermediary models, employment agencies and their clients, and the construction industry. Our team are available for meetings to discuss the specific planning and preparation, so contact the team if you need advice.

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