Parliamentarians report on freelancer consultation

Members of the UKTECH network of freelancers played a major part in the recent online consultation on freelancers by the All Party Parliamentary Small Business Group. The Group has published summaries of its consultation.

This was ground breaking on two particular fronts. It was the first time the problems and opportunities freelancers faced had been identified, recognised and researched by a Parliamentary body. Also it was the first time such a wide reaching consultation exercise had been undertaken online allowing individual freelancers to put their concerns and opinions directly to the 440 MPs and Peers who make up the largest All Party Group in Parliament.

UKTECH reproduces the Group's summaries here.

Summary of the Public Hearings on Freelancers

Freelancers have faced many upheavals in recent times. The All Party Parliamentary Small Business Group (APPSBG) took it upon itself to find out what (if any) problems there are and what can be done to reduce them.

Mr Mark Prisk MP chaired the meeting and opened the meeting by summarising the success of the web-based evidence procedure that preceded the public hearing. He also outlined his experiences during his time as a freelancer.

The public hearing raised the following points: -

Lack of Work

Many IT contractors are currently having significant difficulties getting contracts. Estimates suggest that 30% of IT contractors are out of contract. The Freelancers who attended the public hearing explained the difficulties they have faced in getting contracts and work. These included:

• One company’s revenue was down 99% on last year’s revenue.
  
• Another IT contractor had only three days work this year
  
• Another was contemplating retraining to be a Plumber
  
• It was suggested that over 100 CVs get sent to each IT contract.

Fast Track Visas (FTV)

Many freelancers feel, and evidence seems to back them up, the lack of work is down to the granting of FTVs to foreign IT workers. The FTV scheme is seen as a useful scheme for many sectors but it is argued that there isn’t the demand in the market for so many IT workers - this is illustrated by the number of UK IT contractors out of work. However, 30,000 (approx) IT workers have been granted FTVs. IT contractors tend to operate through service companies (set up usually at the behest of Agents) therefore when out of contract they are unable to claim benefits. Out of work IT contractors do not appear on any Government statistics, so the Government assumes there is a shortage and grants FTVs to IT workers. We need to stop this anomaly and find a way of demonstrating to the Government how many IT contractors are out of contract.

IR35 - Taxation of Personal Services.

IR35 was introduced to counter concerns the Government had with regard to individuals being hired through their own personal service companies in order to exploit the ‘fiscal advantages offered by a corporate structure’, it also aimed to protect workers who were compelled to work via their own service company that ‘may find their terms and conditions altered – perhaps losing entitlement to sick pay or maternity leave. They may even lose their jobs without entitlement to notice or redundancy pay. They will usually have no right to any claim for unfair dismissal and may lose their entitlement to social security benefits through a failure to make adequate contributions’

The aims stated above are laudable yet we think they have failed the freelancer sector in many areas. The principal problem with the legislation was that it failed to distinguish between workers who were obliged to work via a service company by their employer (such as train drivers and health service support workers) and those who chose to work in business on their own account selling their services and skills in the open market as a freelance contractor.

Problems with IR35:

*Uncertainty* Tax experts and the Inland Revenue cannot consistently agree on the status of Taxpayers (i.e. do they fall under IR35) based on their contracts, general working practices and business arrangements. If the revenue doesn’t know, how can the contractors know?

*Bias against knowledge-based workers* Status tests are easier to meet for traditional trades compared to knowledge-based workers.

* Costs * IR35 typically adds £1,000 to £2,000 to the compliance costs of a freelancer and more in opportunity costs.

Solutions:

IR35 addresses the symptoms not the causes. There needs to be clear status delineation and the right for informed choice between employment and self employment.

Section 660A

Section 660 specifically exempts the transfer of assets to a spouse unless the asset was wholly or substantially a right to income. The Inland Revenue is now applying Section 660 in situations where many tax experts and accountants believed that Section 660 did not apply - such as transfers of ordinary shares, which many experts consider cannot be wholly or substantially a right to income. The revenue has argued that in family companies when the main working director takes a modest salary in order to make a larger profit, then any dividends that are paid to family and close friends who are not significant contributors to the business should be taxed as the income of the main worker at their higher rate of tax.

This interpretation introduces several subjective judgements into taxation:

• Who earns the income in a business?
  
• What constitutes the market rate for a salary?
  
• What represents substantial assets such that ordinary shares have a capital value?

It appears that the revenue think that a spouse whose contribution is in the background does not deserve a share in the profit of the business. How many family businesses would fold if the spouse were unable to provide the necessary support to the main worker? The divorce courts recognise this contribution but not the Inland Revenue.

The problems associated with section 660 are:

*Financial Exposure* Inland Revenue are seeking to back date approaches up to six years. This has meant tax bills of £40,000 or more.

* Uncertainty * If professionals cannot agree what the correct interpretation is how are businesses supposed to proceed in future

* How are subjective issues like ‘what is the market salary’ to be dealt with?

* Additional professional costs for advice

* Great PI problems for advisors who failed to warn of the possibility that section 660 could be applied in this way.

Training

IT contractors are knowledge-based workers and in order to be successful they need to invest heavily in training, and maintain their position at the cutting edge of technology. If the government is going to meet its goal of having a knowledge based economy then it must provide incentives for training or at least allow contractors the retained income to be able to keep their skills up to date. Legislation such as IR35 has prevented the necessary investment in training and skills that will keep Britain’s position as one of the technology innovators of the world.

Intellectual Property

The NUJ expressed concern about corporate bullying over intellectual property rights. It transpires that media corporations are compelling freelancers to assign all the rights to their work over to the companies for comparatively little money. Retention of a freelancer’s copyright enables freelancers to provide for themselves for the future and also gives them control over intellectual property they have produced.

In many European countries a producer’s copyright is un-assignable and media organisations licence work for a set period of time, this is an acceptable method and could easily be transposed to the UK system.

TV and Media Freelancers

There are 34,660 freelancers working in film and TV. Virtually the whole workforce in film production is freelance, as is the great majority in commercials (70%) and around a half in independent production (47%); around 1/3 of those in broadcast radio and 1/5 in broadcast TV were freelance. Women represent 39% of all employees in the Film and TV Industry and 42% of all freelancers in the film and TV industry. In some freelance job categories women predominate. For example, 93% of Hair and Makeup workers are female; women comprise 82% of all costume and wardrobe jobs. These jobs involve the longest hours, as they are the first people on the set in the morning and the last to leave.

Freelancers operating in this highly competitive area are particularly vulnerable and lack many of the rights granted to employees, particularly with the European working time directive. It was suggested that these workers need the protection provided under the Employment Act 2002. There are also many problems specific to women working in this sector mostly related to the long hours they are forced to work and the availability and cost of childcare.

End Notes

The Chairman thanked everyone for attending the meeting and for all the useful contributions they made. He also thanked the MPs and Peers for their insightful questions and interjections. A full report on Freelancers in the UK will be produced at the end of July.

Attendance List

Kerry Pollard JP MP

Mark Prisk MP

Lord Randell

James Clappison MP

Rudi Viz MP

Tony McWalter MP

John Taylor MP

Henry Bellingham MP

Brian Cotter MP

Mark Todd MP

Virginia Bottomley MP

John Taylor MP

Linda Gilroy MP

Bill O’Brien MP

Alan Cleverly OBE

Cllr. John May

Susie Hughes – UKTECH

Ian Posner – Director, Mindquest Solutions

Dr. J Pearson – Director, PDS Engineering Ltd.

Barry Roeback – Chief Executive, JSA Group

Andy White – UKTECH

Kevin Miller – UKTECH

Gillian Horne – Director, Quick Computing Ltd.

Mike Holderness – Editor, Freelancernews.org, NUJ

Chris Wheal – MD, Wheal Associates, NUJ

John Toner – Freelance Organisers, NUJ

Andrew Wiard – Freelance Photographer, NUJ

Rob Detheridge – Assistant to Mark Prisk MP

Denis Cassidy – National Association of Press Agencies

Chris Johnson – Chairman, National Association of Press Agencies

Richard Rosson – Director, Professional Contractors Group

Ian Durrant – Director, Professional Contractors Group

Simon Griffiths - Director, Professional Contractors Group

Camel Bedford – Creators’ Rights Alliance

David Fergus – British Academy of Composers and Songwriters

Daniel Kenyon – Freelance Photographer

Martin Cameron – Association of Photographers

Gwen Thomas - Chief Executive, Association of Photographers

Eric Leenderd – External Affairs, Natwest

Jo Philips - PCG

Julianna Leonard - FSB

Jane Todd - FSB

Suzanne Davies – Freelance Producer/Director. Women in Film and Television

Jane Cussins – Women in Film and Television

Susan Rogers – Women in Film and Television

Geoff Jones – Arctic Systems Ltd.

Gordon Stutchbury – Strategic System Solutions Ltd.

Phillip Ross – Wired Republic Ltd.

James Meyrick – APPSBG Research

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Summary of Web-based Evidence on Freelancers