2015 could be the year of the flexible workforce

Contractors and other members of the flexible workforce are a crucial part of the UK’s growth story as a new chapter, 2015, begins. But, asks Martin Hesketh of contractor accountants Brookson, are these vital protagonists being properly valued by the coalition?

My answer is that the flexible workforce is indeed more valued by our government than it has been at any time previously. In other words, the UK is doing more than it’s ever done to support workers who allow businesses to commit to projects or activities that would not get the go-ahead if those businesses could only employ people permanently. However there is still some way to go before the flexible workforce is fully appreciated and supported.

Three elements determine my high-level, mixed view of how the flexible workforce is being treated. They are -- the understanding of the flexible workforce by officialdom; the legislative decisions impacting the flexible workforce that the government has recently taken and the political moves that ministers, departments and officials have made of late.

The state’s understanding of contractors is progressing positively

The flexible workforce is today more understood by more policy-makers than it ever has been. This greater understanding can be seen in many government and central department comments and communications on self-employed and flexible workers. There is much more differentiation between the various populations of workers with their differing needs.

Indeed, the discussions that we have with politicians and policy-makers, both as a firm of accountants and through trade body the FCSA, clearly show an improving understanding and appreciation of flexible workers. As I will explore later in this piece, there are further gains needed on differentiation, but progress in levels of understanding among officialdom has been positive, most notably in the last few years.

Fewer legislative sledgehammers

Government and policy-makers have also demonstrated this greater understanding in the decisions they have taken in the legislative framework around the flexible workforce.

Some action was last month taken by HM Revenue & Customs around schemes at the low-paid end of the flexible staff market, particularly around arrangements that abuse the rules on the national minimum wage, travel and subsistence and ‘salary-sacrifice.’

Also affecting some flexible workers are the onshore and offshore intermediaries rules. Fortunately for the flexible workforce as a whole, consultation has helped ensure that each set of rules to be very precisely focussed. Less positively, the reporting requirements (effective from April 2015) to help HMRC enforce the false self-employment legislation are not quite so well targeted.

Meanwhile, IR35 has been left alone despite a number of reviews by the government, specifically by the Office of Tax Simplification and, more recently, the House of Lords Select Committee.

Leaving IR35 as a piece of legislation untouched was the answer that each review was right to reach. This is because despite its flaws, the Intermediaries legislation lets the genuinely self-employed workers at the high-paid end of the flexible market retain the stability they have had for many years. Nevertheless, the withdrawal of the misused Business Entity Tests is a positive step, as is the validation of the limited company structure and those who use it as not being primarily motivated by tax. These are two good outcomes reached, in part, by the improved understanding of the relevant policy-makers.

Such sensible decision-making regarding the legislative environment for flexible workers, which includes small business owners, was evidenced last month, twice. Firstly, the government stopped a plan to prohibit corporates from being in limited liability partnerships and then it made the now-in-force VAT rules for digital suppliers more business-friendly.

Pleasing political and administrative moves

Additionally, the flexible workforce has seen some pleasing actions in political and administrative terms. These too bode extremely well for 2015.

For example, David Morris MP was appointed in November 2014 as the government’s ambassador for self-employed people. The following month a conciliation service for out-of-pocket contractors was announced by Sajid Javid MP.

Administration-wise, the taxman extended the Contractor Loan Settlement Opportunity and the proposal for a Freelancer Limited Company was, rightly in my view, rejected, in that Autumn Statement 2014 didn’t take it forward or even mention it.  

Yet Whitehall might be about to woo contractors and other flexible workers even more, as 2015 is an election year, in May. Remember the 2014 conferences of the politicial parties? At them, a host of promises and gestures were made to independent workers, techies and small firms. And while we are only in the first week of January, the main parties’ election campaigns appear to have begun already. To help you block out Whitehall’s white noise, it may be worth looking over the manifestos of the various political parties, to see if the business-centric proposals they have put forward suit you and base your vote later this year on that. Almost regardless of their political leanings, given that all politicians seem more ‘in the know’ about the self-employed, and in light of the fact that such independent workers now make up a bigger part of the public than ever before, 2015 could really be the year when the flexible workforce gets the proper recognition it deserves.

Where the flexible workforce is at today

For now though, I am encouraged by what I have seen of late regarding the treatment of the flexible workforce.

Nonetheless, there remains a lot of abuse and exploitation at the low-paid end of the flexible workforce that hasn’t yet been tackled by the government. Low-paid, low-skilled and often vulnerable workers are still being forced unknowingly into ‘industrial’ tax avoidance schemes for the benefit of end-clients, recruitment businesses and umbrella business providers. These large scale abuses need to be tackled more rigorously.

In doing this, there is a real and urgent need for the government to properly understand the umbrella market. Compliant employment businesses are a vital part of the flexible workforce supply chain, providing significant benefits and protections to flexible workers who chose to work this way. Equally, there are instances where workers are being exploited. The key here is for politicians and policy-makers to spend time understanding the abuses and stop these from happening, rather than seeing all umbrella businesses as rogues. The priority must be for them to realise that the umbrella ‘way of working’ is not the problem here -- it is abuse of the existing legislation. This needs enforcement of current laws, not a stopping of umbrella working completely.

So, this government is increasingly recognising the contribution of the flexible workforce and the environment we currently have is as good as it has been for many years. But yes, there is still further progress to be made. This should be concentrated on further educating politicians about the flexible workforce. And this education is necessary so that such policy-makers can continue to make sensible policy decisions while enforcing existing legislation to ensure known non-compliance in the flexible staff market is dealt with, particularly at the low-paid, potentially vulnerable end.

Of course we have to wait and see what 2015 brings. But, in general, more and more policy-makers appear to be grasping the make-up of the flexible workforce and, in doing so, are seemingly recognising more of the value that this section of the UK workforce brings for the UK economy. Long may it continue.