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We can glean some interesting insights from this débacle

We can glean some interesting insights from this débacle

There’s been a wonderful example this week of exactly the kind of problem we contractors are faced with when trying to get our point across. A government agency, SLC– which is basically a private firm owned by HMG – was having some operational issues, so they brought in an expert, a Mr Lester, to sort them out. He was proving to be quite good at it, so they offered him a two year deal. Which he accepted. So far, so good.

The original work was done as a bog-standard interim management role: the guy was not employed, he did the job and charged a fee. When the two year deal turned up, he said fine, can you continue to pay me gross to my existing Limited Company and I’ll sort out the rest.

And then it all starts to go a bit wrong.

Someone – doubtless someone with just enough knowledge to be dangerous – asks exactly why Mr Lester has been allowed to avoid paying his taxes. Shock horror! Let’s do a TV programme on it!! This is outrageous!!! Lets’ have a witch hunt and track everyone else doing the same thing!!!!

Yes well, hang on a minute. Firstly we have zero evidence what taxes Mr Lester is paying, since he’s not obliged to disclose that information. There’s no evidence he isn’t paying quite a lot in tax; certainly, like many well paid contractors, a lot more than the average worker. He may even (say it quietly) have declared his earnings under IR35. Who knows?

His is a perfectly straightforward and entirely legal way to operate his company, to share his income with his other half and generally behave like the other 1.5 million freelance workers in the country. Like that chap who earns a million or so a year from public speaking. You know the one, David Milliband, sometime brother and elected, serving MP. Or indeed, the unloved Mr Brown who does the same with his outside earnings, although in his case they all go to charity.

It’s also interesting to note that various senior people had to sign off the arrangement whereby Mr Lester was paid gross. One might think that they had a handle on such things, but I could be wrong. And it’s all a bit moot now anyway, since Mr Lester has done the honourable – if arguably unnecessary – thing and gone on the payroll like the rest of the wage slaves.

But we can glean some interesting insights from this débacle.

Firstly, there are clearly a lot of senior people, including some who are actually in charge of such things, who don’t have a Scooby about how contractors work and how they are paid. Basically they do not trust a usually intelligent and highly skilled worker to arrange his affairs so that all taxes due are paid in full and on time.

Secondly we have once again seen the conflation of avoidance and evasion. Yes you can be against avoidance, but it’s not illegal; quite the opposite, in fact, it has long been sanctioned as an acceptable practice. You want evasion? Fine, so make whatever it is illegal and you’ve got it, but being tax efficient is avoidance, not evasion, and perfectly fine.

And finally, someone can’t actually count. Mr Lester will finish his contract and leave. No pension, no golden handshakes, no extended period on full pay while he finds a new job. That’s quite a chunk of public money saved over a full time employee. In fact, if you do the sums based on the figures that have been published, this tax saving exercise of moving Mr Lester on to the payroll will actually cost several tens of thousands more that if they’d simply left things alone.

But hey, nobody ever accused either HMG or the fourth estate of being financially competent, did they.

And what grates is the underlying point that people who should know better simply fail to recognise that there are freelance contractors among us. People who keep the wheels turning, who make few demands on the state, who represent an efficient and cost-effective workforce. People who are a long way removed from those who create companies for no other reason than to avoid paying taxes on earnings that they wouldn’t have got at all were they not already on the public payroll. You know who you are.

So bring on the witch hunt. But please, break the habits of a lifetime and point it at the right target…

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Getting insight by Miran Rijavec

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