IR35 Private Sector Roll-out

In the short period since the publication of HMRC’s Consultation Document on Off-payroll working in the private sector much has been written discrediting their claims of the effectiveness of the reforms in the public sector.

It is clear from the consultation document that HMRC regard increasing compliance and efficiency as the key focus points of their proposals. HMRC claim that the requirement to investigate individual personal service companies (PSC) on a company by company basis is inefficient and results in duplication of effort. Perhaps HMRC should consider their available resources first and design a strategy to fit?

Contractors are more likely to want to organise their arrangements to suit their end client and agency – indeed they are often forced to – rather than comply with an arbitrary set of tax rules. Especially if those tax rules are seeking to bend reality to them rather than reflect commercial terms.

As a creditable alternative IPSE proposed the Freelancer Limited Company model. This has, however, been swept aside by HMRC on the basis that ‘it would effectively create a new tax regime, rather than improving compliance with the current rules’. Is it therefore time for freelancers to consider a traditional structure which will provide an answer to HMRC’s complaints of inefficiencies and duplication of effort whilst allowing freelancers to continue to work outside IR35 if their individual circumstances support it?

Is the time perfect for freelancer worker co-operatives?

Worker co-operatives are owned and democratically controlled by their members. The main purpose of a worker co-operative is to provide employment for its members through an entity which follows the co-operative principles and values. Each member has one vote, irrespective of their investment in the co-operative so that all members have an equal opportunity to influence the decisions which affect their everyday working lives.

Worker co-operatives differ substantially from conventional businesses whose primary goal is to turn in a profit for its owners. The big attraction for freelancers of a worker co-operative is that they are working for their own benefit in a similar way to operating through a PSC.

Subject to their personal IR35 status they can be remunerated by way of salary and a return on their investment which is calculated by reference to their own individual contribution.

Although worker co-operatives are a traditional structure, they could be seen as a radical opportunity for freelancers to continue to have some flexibility in the way they work which requires no change to existing tax law and provides an answer to HMRC’s protestations.

If you have any questions or would like to talk to us about becoming a member of the Contractor Co-op please get in touch. Either call us on 020 3468 0009 where we can talk through your individual situation or send us a message to info@contractor.coop.