Employees’ groups are lobbying to stop what they see as a “witch hunt” against workers being paid as private companies ahead of talks with tax officials tomorrow.
The groups warned high-calibre professionals would be deterred from applying for public sector jobs if pay regulations were toughened in the wake of the scandal over civil servants being paid through companies to lower their taxes.
Several Whitehall departments have been forced to change their pay arrangements in recent weeks after admitting to paying employees as companies rather than individuals.
Chris Bryce, chairman of PCG, which represents freelance workers, said: “We have an almost hysterical witch hunt to clamp down on the very sector in the economy which is actively growing.”
The comments came amid fresh details about how many civil servants had received pay through a company. Deepak Singh, acting information chief, and Jim Morrison, acting head of human resources, both of the tax office, were revealed by the Mail on Sunday to have been paid in this way, as were Paul Brown and Jon Seddon, who work for the Office for Nuclear Regulation.
The practice allows both employers and employees to avoid paying national insurance contributions, and allows workers to cut their income tax bills. Opponents have argued this amounts to a tax dodge, especially when the employees are in effect working in full-time, permanent roles.
Mr Bryce said: “If you want the right person for the role and it is a temporary role, using a freelancer is a perfectly good way of doing business.”
His words were echoed by Stuart Davis, chairman of the Freelancer and Contractor Services Association, who said: “At a government level, the importance of a flexible workforce is misunderstood. They tend to operate a ‘one size fits all’ mentality.
“If it means they are discouraging entrepreneurial methods of getting people into the workforce that would give me concern.”
Representatives of both groups will meet officials at Revenue & Customs tomorrow for the last meeting before the Budget of a task force set up to review the laws preventing paying people through companies if they are in effect a full-time permanent employee.
The Office of Tax Simplification, which has led the review into the so-called “IR35” rules, previously recommended simplifying or abolishing the rule.
The OTS has since been drawn into the row itself after admitting that Angela Williams, one of its advisers, is paid as a private company. Government officials say Ms Williams was hired as a part-time external adviser, and so the practice was valid.
But freelancers’ groups are worried the OTS, under political and public pressure, could move in the opposite direction and tighten regulations instead.
Aides to Nick Clegg, the deputy prime minister, are looking into such options, while an aide to George Osborne, the chancellor, was reported to have said: “We are rooting out the inappropriate use of private service companies for people who are [in effect] working as employees. We are going to put a stop to it.”
Mr Bryce said: “IR35 is a complete mess. It’s a dog’s dinner and has been since it was introduced in 2000. It is an unworkable piece of legislation and should be repealed.”
He recommended shifting the onus of complying with the rules from the employee to the employer.
The FCSA has written to MPs asking them to tone down the rhetoric on the issue for fear of stigmatising genuine freelance contractors.
Mr Davis said: “There is the danger of politicians shooting themselves in the foot if their comments are not well thought out and properly considered.”
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