Reactions to the one month contractor cap

Reactions to the one month contractor cap

18 November 2015

A shock employment law regulation which could be announced at the Autumn Statement on the 25th of November has been heavily criticised by large portions of the contracting community. Currently it is unclear when it will come in, if at all.

The rumoured policy proposal, which many insist is still only a rumour, would mean that contractors using personal service companies like Umbrella.co.uk would be obliged to move onto a client’s PAYE system if their contract ran longer than one month.

According to the Guardian, a government source claimed: “This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax.”

This proposal and misguided justification have drawn concerned reactions from politicians, industry bodies and ordinary contractors.

We’ve summarised some of the most important criticisms below. We are also encouraging contractors to warn their MP about the consequences that the one month contracting cap would have using this letter template from IPSE

Last week, we reported that Lord Palmer had criticised the policy and the way it was leaked without consultation with key stakeholders.

He said: “The March 2015 Finance Bill—not the Bill before us today—had a clause added to it without consultation, and was enacted two days after that addition was made.

“The Government did not notify the umbrella company sector that it would be making those changes at that late stage. In speaking today, I am seeking that the Government should think again with the current Bill and repeal the section in question.”

Freelance organisations like The Association of Independent Professionals and the Self Employed (IPSE) have also criticised the announcement.

A strongly worded letter form IPSE chief executive Chris Bryce painted a bleak picture about the future of contracting under such a limit.

He said: “IPSE has been engaging with the Government on this issue already, making clear any such change cannot be considered sensible in any way and that any such proposal should be discarded.

“It would make operating a freelance business almost impossible in many instances, and would cause untold damage to the UK's economy. It comes on top of damaging proposals to end travel and subsistence tax relief, increase dividends taxation and toughen IR35 small business tax regulation.”

Umbrella.co.uk is joining IPSE in encouraging contractors to write to their local MP highlighting the damage this proposal would do to them. You can download a letter template here.

Another industry body, the Freelancer & Contractor Services Association feels confident that “a number of politicians” will challenge the chancellor’s proposals if he unveils it at the Autumn Statement.

The argument goes that if enough contractors build up momentum against the one month contractor limit then the government will have no choice but to shelve the policy.

Response from ordinary contractors

Some of the most interesting reactions are those published on online message boards and in the comments sections on newspaper articles. Here, ordinary contractors have had their say.

Some contractors reading this Daily Mail article felt strongly that, although contractors do earn more overall than their fully-employed counterparts, this additional money only covers them for periods of downtime when there is less contracting work.

Many highlighted the fact that although they enjoy more favourable systems of tax, they also miss out on all of the job security and financial perks that come with being a PAYE employee.

There is a feeling that, instead of trying to make contractors equal with permanent employees, the government should reward contractors for the extra risks they take and the valuable role that the flexible workforce plays in the UK economy. Otherwise, where is the incentive?

Some people on contracting message boards grew annoyed that the government was targeting ordinary contractors for relatively minor sums of money while multinational companies still get away with the tax equivalent of murder year in year out.

Others were confused why the Guardian and the Daily Mail were still using BBC stars Jeremy Paxman and Fiona Bruce as the ‘contractor’ poster boy and girl. Both of these presenters stopped using personal service companies in 2012.

Having these high-earning celebrities as a kind of representative of all contractors is misleading and paints a picture of personal service companies as being aggressive tax avoidance schemes. In reality, most umbrella companies cater for people on significantly smaller incomes like supply teachers and construction workers.