BECTU response to Inland Revenue provision of personal services proposals
14 July 1999
I write on behalf of BECTU, which as a trade union with a large number of freelance and self-employed members in the film and television industry has a close interest in this issue.
We were represented (by our tax consultant, Mavis Sargent) at the consultation meeting with the Inland Revenue held on 10 June 1999, at which the concerns of ourselves and many others affected by these proposals were put forward. We understand that you will now be considering the outcome of the initial consultations and deciding on future action.
Our own views are based on representing thousands of freelances (all of whom have tax status concerns and many of whom operate through service companies or partnerships); on 15 years of detailed discussions with the Inland Revenue special units dealing with our industry (including an annually revised list of Schedule D occupations); and on close involvement in a key case (Hall v Lorimer) successfully taken by one of our members all the way to the Court of Appeal.
Some of our key concerns may be summarised as follows:
- Although the Budget Press Release states that 'there is no intention to redefine the existing boundary between employment and self-employment' we fear that this will be precisely the effect for anyone working through a service company or partnership. The proposals would replace the well-established range of criteria used in defining employment/self-employment with a single and we believe outdated test of 'control'. In our industry this could mean that despite 15 years of detailed grade by grade discussion with the Revenue in compiling the Schedule D list, an individual who is self-employed in terms of the list could find themselves in effect treated as an employee simply because they work through a service company. There will, in effect, be 2 sets of rules on tax status operating in parallel. In our view, this will inevitably lead to confusion and chaos.
- The landmark Lorimer case, which acknowledged the key criterion of operating as a business like organisation, and which has resulted in many successful individual reviews of tax status for freelances in our industry, appears to be completely ignored. Again, a single test of 'control' would be replacing a broader ranging, more modern and more sophisticated approach to tax status based on real cases rather than administrative decisions.
- The proposals will catch not just 'disguised employees' (who we would not seek to defend) but individuals who operate through service companies for genuine business reasons. In our own sector, individual freelances may, for example, wish to invest in expensive new equipment and in the ongoing training and retraining involved in keeping pace with new digital technology. Imposing PAYE rules on individuals who operate genuine, properly conducted businesses (and who may otherwise have been self-employed) seems grossly unfair and extremely discouraging to a dynamic small business sector which in other contexts the Government says it wants to promote. The proposed registration system, which again imposes PAYE rules, does not in any way resolve such problems.
- We would hope that in order to avoid these negative consequences, the proposal as it stands could be withdrawn and the problem of 'disguised employees' tackled in other and more targeted ways. Failing this, which would be our clearly preferred option, we believe that at the least the proposal should be modified so that the test applied would be: 'whether, on the basis of existing case law and practice, an individual would be regarded as an employee if it were not for the intervention of a service company or partnership'. This, rather than the proposed single new test of 'control', should in our view be the basis of the approach to service companies.
We hope that you will take account of these representations and amend the proposals accordingly. We acknowledge that there has been preliminary level of consultation but we believe this in itself will be inadequate to address a complicated and far-reaching issue. We therefore strongly urge that following you own initial consideration of the response to the proposals, there should be a further process of serious and meaningful consultation before the proposals (whether modified or not) are finalised.
We are of course willing to provide further information on any aspect of our concerns to you or your officials, or indeed to attend any meeting which you or your officials would find useful.
I hope that you will take account of our views.