A rule change on the tax status of self-employed people working for private sector companies was the biggest new revenue raiser in the budget.
The tax framework, known as IR35, is aimed at stopping tax dodging by disguising employment through so-called personal service companies, which will cost the exchequer £1.3bn a year by 2023-24, according to HM Revenue and Customs figures. In a bid to stem that flow, the chancellor, Philip Hammond, is making private firms with more than 250 employees responsible for checking contractors’ status – and liable for paying tax fines if they get it wrong.
James Horabin, a quantity-surveying consultant from Mansfield in Nottinghamshire, said the seemingly small change might mean he has to “liquidate the business and fold”.
Horabin fears that private-sector firms will not want to employ his small firm if they perceive a risk of a big tax bill later, even if he legally meets the conditions for remaining as an off-payroll contractor. That could leave him with the choice of going on the payroll or turning down work, he said.
Horabin, who is married with three stepchildren, said he has already been forced to quit a big project for the high-speed rail project HS2 after the equivalent rule change in the public sector, which came in from April 2017. HS2 Ltd insisted that he move on to the company’s payroll.
His office, which employs two full-time staff and five casual workers, was “fairly glum” as Hammond made his speech, said Horabin. He will focus now on lobbying for changes to the HMRC tool which is used to assess workers’ status, to try to cushion the blow. The year’s delay until April 2020 will also give him some time to look for more business and reduce reliance on firms who might decide he has to go on payroll, he said.
Horabin trained as a quantity surveyor at Nottingham Trent University – after growing up “in my father’s construction company” – and eventually became a commercial director at a civil engineering firm. While contracting can be “feast or famine”, he still wants to keep the freedom of being a free agent, able to choose how and when he works.
Horabin called the policy an own goal that may end up costing the government money if firms such as his are forced to forgo work. “Traditionally I’ve been a Conservative voter, but I’m having serious doubts over whether I’ll be voting Conservative again,” he said.
A spokesperson for accounting group EY said: “The measure, at over £1bn, raises more in one year than any other measure in the budget, and it will be important for the government to use the period between now and April 2020 to address the problems that are present in the current scheme that applies to the public sector. Without this, there is a strong risk that the implementation will be problematic and potentially undermine the availability of the UK’s flexible workforce.”