What contracting might look like after April 2016

Becoming the government’s pet peeve is, once again, where the UK’s contractor army finds itself as it is reluctantly marched towards next month’s Autumn Statement 2015, writes Lisa Keeble of ContractorUmbrella.

Quite apart from the potential birth of the ‘son of IR35’ – which promises to be even more incomprehensible than the original rule, HMRC also wants to restrict tax relief on travel and subsistence costs for vast swathes of contractors.

As none of us has a crystal ball we can only make an educated guess as to how this will affect our economically-vital industry, and mine is as follows as far as umbrella contracting is concerned.

So post-April 2016,  some umbrella companies may begin to offer new solutions which will take workers out of employment under an over-arching contract and into a much less secure arrangement involving zero-hours contracts or even no contract at all. Under this arrangement, the umbrella company would merely act as a glorified payroll bureau.

Over-arching contracts were originally used by umbrella companies to create continuous employment and thereby ensure that their employees would be working on a series of temporary assignments which would entitle them to tax relief on the travel and subsistence costs. Now that HMRC is planning to base entitlement on whether or not the worker is under the supervision, direction or control (or right thereof) of the end client (and anyone else), some umbrella companies may think that there is little point in maintaining over-arching employment contracts and the costs associated with them. More than one brolly can be heard asking ‘why bother with all that after April 2016?’

Well it’s a fair question and as the managing director of one of the UK’s best-known umbrella companies, I confess that it crossed my mind too when the changes to legislation were floated in (the March) Budget 2015. We could significantly cut our costs by shrugging of the mantle of ‘employer.’ The trouble is, it then occurred to me that the recruitment agencies we work with could be seriously disadvantaged by such a decision; if an umbrella company doesn’t take on the responsibilities of an employer then where will they fall? I also can’t imagine that the great and good at Westminster would be pleased if umbrella workers were all stripped of their employee status overnight.

If the T&S legislation goes through as it has been proposed, then contractor pay rates will definitely go up, assuming UK PLC wants to maintain a truly flexible workforce. Supply and demand dictates that, as long as contractors are needed, recruiters will supply them to end clients; the price going up doesn’t mean that the client will suddenly decide that they need a permanent worker for the role. It also doesn’t mean that they will suddenly outsource everything to Mumbai. Business leaders are not stupid – they know that, if they need the best, they’ll have to pay for it; if this wasn’t the case Apple would have gone out of business long ago. Contractors should take some comfort from these truisms of how their market operates.

Moreover, I would also (with caution) venture that the proposed legislation on T&S may actually not go through in its entirety. There has been a massive outcry in the industry over ‘SDC’ with many commentators pointing out certain downsides to the proposed changes which will not appeal to HMRC’s political masters. Yes, this is all about getting in more tax but it’s also about not losing votes! None of us knows what’s going to happen to the UK’s brigade of contractors from April next year but my advice would be, to quote from another well-known army that the nation is fond of, “Don’t panic!”

Editor's Note: Related Reading -

How umbrella expenses will get tougher still

Contractors' Questions: How to prepare for SDC and IR35 version two?

Finance Bill 2016: PSC contractors given a get-out

Contractors' Questions: Who's liable if I claim expenses but am 'SDC'?