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IR35 Review: Don't Choke Off The Gig Economy

As the government continues its drive for growth, it seems madness to change tax regimes and curtail the economy’s greatest source of skill.  

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As the government continues its drive for growth, it seems madness to change tax regimes and curtail the economy’s greatest source of skill.  

Opinions

IR35 Review: Don't Choke Off The Gig Economy

As the government continues its drive for growth, it seems madness to change tax regimes and curtail the economy’s greatest source of skill.  

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Latest analysis from Reed shows that the IT job market is up by 12%. Investment in artificial intelligence through to apps to support the plethora of devices associated to the internet of things’ (IoT) revolution are helping to stimulate the growth.

And of course there’s Brexit, influencing a lot of IT change programmes as companies navigate uncertainty and pre-empt new ways of trading.

Against that backdrop of significant change, the Spring Statement put growth firmly on the agenda and in particular Britain’s contribution to the fourth technological revolution. From 5G testbeds to provide fast, reliable broadband to more homes and businesses, through cashless and digital transactions, there were certainly some big ticket items on the agenda.

This is great news for contractors and consultants who often underpin bursts of innovation, as well as small businesses like ours which have ambitious plans to scale-up and take advantage of artificial intelligence and machine learning.

It’s also good news for the thousands of people who form part of the gig economy. So many of these ‘giggers’ are able to get work because of the way technology is being used to create new disruptive services. Deliveroo is a prime example.

I’m sure that there are many business leaders of startup though to multi-nationals and economists who think that investing in technology is crucial or we risk stunting our country’s growth and employment otherwise.

The gig economy has opened up far more flexibility in when we work, better suiting modern lifestyles, and given people who perhaps couldn’t or wouldn’t want a full time job a means to be self-sufficient using a skill that’s in demand.

And it’s become even more enticing to join the gig phenomenon since the Taylor Review highlighted that workers rights to holiday and sick pay can’t be ignored.

Indeed in an interview with the BBC, Greg Clark, secretary of state for business, acknowledged that there are new challenges posed by the nature of gig working, mostly because it is so erratic in terms hours worked, and that the government needs to find a way to support the revolution so it thrives, but still adheres to employment laws.

However, if you are at the other end of the self-employed spectrum, the one that takes on roles for three, six, twelve months at a time, you might find yourself scratching your head a bit.

That’s because in November, Chancellor Hammond’s budget set in motion a review on IR35 – the tax framework that prevents a company employing someone as a contractor, rather than an employee, for tax efficiency.  The rules are tougher for public sector than private at the moment, but this review could see the private sector go the same way.

If I were a betting man, I’d say that the review will prompt some major changes to the tax framework and the way in which people select the work they take, and how ready companies are to take on short-term skilled practitioners.

I think that would be an own goal for the government. I say that firstly because anyone who is self-employed is helping to keep unemployment figures down – a major metric of any government’s success. Secondly, you can’t sustain growth without expertise, and innovation in our country relies on a wealth of freelance skill at the moment. And lastly, tax avoidance isn’t the issue for contractors.

In fact, when you talk to contractors, though they acknowledge that they currently pay less tax, it’s a benefit that isn’t top of the list of reasons why they have chosen to become self employed. In fact some would be willing to pay more tax if it made for a fairer society.

Being able to collect the children from school, support an elderly relative, train for marathons, and finding more challenging and rewarding work that’s not offered to a permanent employee are the reasons why people do it. They also take on trade offs of no sick or holiday pay, and no pension contribution.

Lots of contractors up and down the country in all fields, not just IT, say paying tax is a given, and they want to abide by the law. And it explains why so many set themselves up as a limited company and use accountants who keep them on the right side of HMRC. They want to do the right thing.

They also want highly rewarding work that often only comes from significant change. Any company embarking on digital transformation programmes or implementing new technology will need skill for the project’s duration but not beyond. Such flexibility only comes from a contracting market. It’s how the whole ecosystem prospers.

And I say it is how the UK will prosper overall. It would be pretty shortsighted of the government to take that new found freedom away from everyone who takes part in providing short-term skill with inflexible tax regimes.

The gig economy is here to say. It will change in its guise as new employment rights come into force, of that there is no doubt, but as a nation we have woken up to the possibility of working hours to suit our lifestyles.

We need to sustain this new momentum, and do all we can to support the economic growth it encourages and the employment it generates rather than curtail it. Because if we fail in this, we will fail in our ambition to be a world leader in innovation. A risk, I believe, is far too great in uncertain times.

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IR35 Review: Don't Choke Off The Gig Economy

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