Thousands of freelance workers at Lloyds Banking Group will be told on Tuesday that they face losing their jobs or receive pay cuts of up to 30 per cent, because of a government crackdown on tax avoidance.
New legislation coming into force next April forces all large and medium-sized UK companies to assess the employment status of contractors they use, to tackle what HM Revenue & Customs calls “disguised employment” — where workers are treated like self-employed contractors, despite in effect being employees, meaning both sides pay lower taxes.
Banks are major users of short-term contractors, particularly for IT projects, but are taking a hardline approach to the new rules.
Lloyds will start letting contractors know about their options on Tuesday. Some will be offered staff roles, but others will have to work through third-party umbrella companies, which charge fees and deduct payroll taxes from the contractor’s income, if they want to stay with Lloyds.
Barclays, HSBC and Morgan Stanley have made similar moves, as they seek to avoid increasing their wage and tax bills at a time when they are under pressure to cut costs.
Barclays are supposedly going to stop recruiting off-payroll contractors because of the government’s tax avoidance scheme 1R35 that is being implemented in April 6th 2020 to ensure that self-employed private sector workers pay the correct tax. This information comes as a result of an internal email that was sent to the bank’s line managers being leaked, saying they must no longer use freelancers “who provide their services via a personal services company, limited company or other intermediary”.
The IR35 reforms are expected to bring in an extra £3.1 billion in revenue for the exchequer between 2020 and 2024. It will be up to the recruiters instead of the contractors to determine what taxes a worker will be paying. However, the issue with this new legislation is that it is extremely difficult to adhere to and, as a result, businesses like Barclays would rather not hire self-employed people out of fear of not following the rules correctly, as Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, believes:
“IR35 is a nightmarishly complex piece of legislation, so complex that Barclays has decided it cannot manage the risk of falling foul of it,” he said. “I hope other organisations will take a more pragmatic view. Clients can get their houses in order, get their heads around this legislation and still benefit from the use of self-employed people.”
HMRC won the tax case against three BBC presenters in court over their IR35 status earlier this year. However, confusion regarding the application of the IR35 rules still remains. Even the tribunal judges could not agree on the outcome of the case, one believing that IR35 should have applied and another that it should not.
The lack of certainty and clear rules has left many presenters and freelance workers unsure about what steps to take to ensure they don’t face the same fate.
The BBC had this to say on the matter: “Recent hearings involving presenters from across the media industry have produced a range of outcomes and this split judgment further demonstrates the confusion of the tax system for those working in broadcasting.
“We have tried for a long time to agree a set of guidance with HMRC which gives certainty for the media industry. It’s vital that HMRC now provides the greater clarity which is still needed to avoid others having to go through this ordeal.”
Skilled workers are driving both growth and pay increases in the independent labor force, according to a report from Upwork and Freelancers Union. Based on a survey of 6,000 U.S. workers over the age of 18, the sixth annual Freelancing in America 2019 report showed that freelancing is becoming more of a long-term career choice. Additionally, freelancers are most likely to be skilled professionals working in programming, marketing, IT and business consulting. A 2017 ManpowerGroup poll found that an overwhelming number of respondents were open to nontraditional forms of work. Some workers, of course, will prefer the stability and benefits that are more often found with employee status, but others will prize flexibility.
Uber is moving into temping, launching a flexible working app for pairing freelancers with jobs as the company continues the hunt for profits.
The ride-hailing giant confirmed its new app for contractors and shift workers, Uber Works, will launch in Chicago initially.
Uber said the service was aimed at American blue-collar workers such as cooks, warehouse workers, cleaners and event staff, making it easier for them to find shift work.
The app will provide information on pay, skills required and other working conditions.
While Uber’s app will be used by freelancers, the company will also work with existing staffing agencies in the US. Those agencies will be responsible for handling employee benefits and taxes.
It is the latest new venture from Uber as it expands from its original ride-hailing business into food delivery, freight, bike hire and even a flying taxi service. Uber floated in New York in May at a value of around $80bn (£65bn), but it’s share price has fallen by around 30 percent.
Last week, Uber chief executive DaraKhosrowshahi said he wanted the app to be “a one-click gateway to everything that Uber can offer you” and “the operating system for your everyday life”.
There are around 20,000 staffing companies in the US, according to the American Staffing Association. Total revenues for the sector were around $167bn last year, up 4 percent. The number of self-employed people in the US is expected to triple to 42 million by 2020, according to Deloitte.