The Chairman of the PCG (the membership organisation for freelancers) met with a House of Lords Select Committee towards the end of December to answer questions on freelance contracting and IR35.
Asked by the Committee to explain why contractors use Personal Service Companies (PSCs), Chris Bryce said;
“Just like any other businesses, there are clear commercial reasons for freelancers to use limited companies.
“First and foremost, it separates business assets from personal assets. This is crucial when you consider the complex, business-critical nature of the projects these highly-skilled specialists are typically involved with.
“Using a limited company also makes it simpler to negotiate with other freelancers with regards to subcontracting arrangements, or situations where the freelancer bids for a contract as a ‘consortium’ with other freelancers.
“Lastly, most, if not all, agencies – and some clients in fact - insist that freelancers use a limited company and will not engage with them otherwise, meaning freelancers that do not will be unable to bid for a significant proportion of available contracts".
In response to the Select Committee’s questions regarding creating a clear definition of the term ‘personal service company’ with regards to those working in the ‘professional’ sectors, Chris Bryce outlined how the changes in ‘work’ might make that difficult;
“In the flexible labour market that we have now, this route is not only available to the upper echelons of the labour market as it has been historically but also to young people, working mothers, and anyone who might choose this way of working as a viable alternative to permanent employment.
“With the growth of new industries such as digital technology, freelancing is no longer the preserve of the vastly experienced, highly skilled sectors of the workforce. A freelancer choosing to operate as a limited company should not be separated from the herd. They are limited companies just like any other and they should be treated as such.”
When asked by the Select Committee to describe the issues with IR35 and what can be done to improve the situation, Chris Bryce said;
“The simple fact is, IR35 is outmoded and unnecessary. We, along with the Federation of Small Business, seek its abolition and the Office of Tax Simplification has called for its suspension.
“We would support either of these solutions. However, if neither are politically viable, amendments need to be made so we can arrive at a system which does not include a slew of unintended consequences for legitimate freelancers, their clients and the economy as a whole.
“When companies such as ARM Holdings, one of Britain’s greatest business success stories, are using contractors as a key part of that success, it is clearly wrong that other businesses are put off from doing so by IR35".
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