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IR35 – and still it rumbles on…

IR35 – and still it rumbles on…

Since outing Mr Lester as a tax avoiding monster intent on destroying the UK economy single-handed, the press and the BBC have continued to turn up cases where people are working for the Civil Service in a range of senior roles but who aren’t actually Civil Servants. Gosh, who’d a thought it…

The reason for all this angst is, of course, that these people are not paying the same taxes as they would as employees. OK. And your point is, exactly? That is wrong on so many levels you wonder just how much research these journalists have done.

Firstly the workers are almost certainly paying all the taxes they are due to pay. Contractors – for that is what they are, even those labelling themselves as interims – don’t use limited companies as a tax avoidance device. As I explained last week most of the time if they haven’t got a company or work through an umbrella, they won’t get the work at all.

Secondly, of course, they tend to charge rather more than the equivalent Civil Servant while they are working. So although they may pay a lower percentage than an employee, they will quite probably be putting more back in the revenue’s coffers that the said employee. Plus, of course, when their time is done, they leave with none of the costs that a redundant permie will incur.

So a contractor doing basically a time-bound role is not costing anybody anything; in fact, they may well prove to be more economic. Perhaps that’s why Cameron values the freelance contractor workforce as adding £20bn to the UK economy every year.
But, all that aside, there are still a couple of issues that do need to be cleared up.

The first is that a major benefit of using a contractor to fill a permanent post is that the employer – in this case the Civil Service and related public bodies – is stepping away from quite a lot of costs. They avoid having to pay employer’s NICs for one thing. They also avoid the costs of training, sick pay provision, pensions and a whole heap of incidentals. And that applies whether you’re talking about hotel chambermaids or Programme Directors. Get them off your headcount and you’re saving serious money.

So, question one: how many of these roles are filled by contractors only to benefit the employers?

The second is that the row is basically about people in senior Civil Service roles. Which rather begs the question, why are there not suitable candidates coming up through the ranks to take over these roles as the incumbent moves on? Where is the succession planning that any executive ought to be applying to their own role?

For example, our dear friends at HMRC saw fit to retain their Head if IT (at, it has to be said, a ludicrously inflated rate) when he stood down until a replacement could be found. Secondly the even more esteemed Mr Hartnett is leaving HMRC and being replaced by someone moving sideways from another Department entirely because, according to Hartnett, there are no suitably qualified replacements available.

So, question two: why the hell not?

There are lots of things wrong that have led to this whole bun fight. However, using contractors as a key resource and then bitching about their tax arrangements is not one of them.

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: Day 280 – Sisyphus by Menage a Moi

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