I couldn’t agree more that the system by which we tax work is ‘very complicated’, and in many ways represents a code of practice based on 20th Century conditions, attempting to deal with the realities of 21st century social and employment practices. And there is no doubt that it is failing.
Last week I lost a legal battle in the Court of Appeal, brought by one former contractor, who after taking advantage of being self-employed for six years, during which time he earned a large amount of money, and paid a lot of tax to HMRC, albeit at 20% not 40%, as he would have done if he’d been an employee on PAYE.
The problem here is the assumption that businesses like Pimlico Plumbers who pay contractors in this way are short changing HMRC with their tax arrangements, and shafting the contractors because their status denies them employment rights. Now that may be true in some well publicised cases, but certainly not in mine, and I’m certain I’m not alone.
Over the years hundreds of contractors working for my company have paid for their houses in just a few short years, something that would have been impossible working on wages as employees earning £40k a year.
And, while one man decided he wanted employment rights, the hundreds of other contractors, past and present, making a lot of money from Pimlico Plumbers, are not crying ‘exploitation’, but rather are worried that the good times might be coming to an end.
As to the charge that HMRC are being short changed, well, if you do the maths, which they have done I’m sure, you’d find that 20% of the £100,000 that my contractors earn, is far better for the tax man than a marginal 24%, or £9,600, on PAYE that the same tradesman would be paying if they were taking home £40,000 per annum as an employee.
Mr Taylor has also quoted the Chancellor when he said that the rise in the ranks of the self-employed had impacted on the tax take of the Exchequer, which, despite the example above, could possibly be true. But only if the alternative to self-employment was paid work as an employee.
The reality is that self-employment spiked during the recession due to unemployment, and the real counterfactual for the Exchequer was paying an unemployed person a benefit!
So yes, it’s complicated, and looking at his comments and his track record, I’m certain that Matthew Taylor completely gets this point, and is not going to be dragged into the populist and trade union inspired dogma that self-employment is only used by companies intent in screwing those doing the work, and ripping off HMRC.
I think there is a genuine place for the self-employed contractor model in the 21st Century UK economy, and I would very much like to add my input from 40 years in the plumbing industry to Matthew Taylor’s very timely review.