The Freelance Informer looks back on 2022’s top freelancer stories and how they could shape the freelance economy going into 2023
#1 IR35 Off-Payroll reforms would be repealed
IR35 and Off-payroll policy news monopolised the headlines in 2022. But perhaps the news story that affected portfolio contractors the most was former Chancellor of the Exchequer Kwasi Kwarteng’s mini-budget announcement that IR35 Off-Payroll reforms would be repealed. The news was welcomed by hundreds of thousands of freelancers across the UK and the companies that hire them. But the joy would be short-lived, much like Kwasi Kwarteng’s time in office as Chancellor.
Freelancers at the time of the mini-budget announcement felt their voices were finally heard and had a Chancellor that understood their value and economic contribution to the UK economy for their specialist skills.
Just months before the mini-budget news, the FI reported that over half of companies had regrets over IR35 decisions and blanket bans on freelancers that ran their own limited companies.
That regret would grow when in December 2022, it was revealed through independent research that Off-Payroll rules are costing companies 74 times more than HMRC estimated. Research also revealed that the government admitted that it knows that many contractors are paying unnecessary taxes.
Matt Fryer, MD of contractor accountancy and services firm Brookson Group said of the findings:
“This suggests that a significant number of the 130,000 individuals who have been moved to payroll as a result of the reforms may have had contracts incorrectly categorised as inside IR35 and are now paying unnecessary employment taxes.”
HMRC seems keen to highlight that this represents just 2.5% of the total self-employed workforce and less than 1% of the total workforce. Is this an indication that the Government is content with the unfairness of this outcome?Matt Fryer, MD Brookson Group
#2 Jeremy Hunt revokes the repeal of the Off-payroll rules
Any hopes for freelancers that the Conservatives would embrace their former status as the “Party of Business” faded just weeks after the mini-budget was first announced. The Freelance Informer reported that the IR35 reforms would likely be reinstated when a new government came into power.
Osborne Clarke’s Workforce Solutions team at the time was not convinced that IR35 reforms would be repealed under a new government.
We think it more than likely that by the time everyone has got used to these changes the IR35 reforms will be reinstated by a future government and we will all start again. The Grand Old Duke of York would have been proud of the history of tax policy in this area.Osborne Clarke’s Workforce Solutions
In November, the FI reported that Osborne Clarke’s expectations were spot on when the newly elected Conservative Party Chancellor, Jeremy Hunt, had revoked the repeal of the Off-payroll rules that were introduced in 2017 and 2021 to the public and private sectors. All the mini-budget tax cuts were also reversed by Hunt.
At the time, former PM Liz Truss was forced to announce under Hunt’s guidance that Corporation Tax would rise to 25% in April – reversing Kwarteng’s mini-budget plan to keep it at 19%.
The previously announced small profits rate of Corporation Tax would be maintained. Smaller or less profitable businesses were relieved that they would not have to pay the full 25% rate, and companies with less than £50,000 of profit – the large majority – would not see any increase at all, continuing to pay Corporation Tax at 19%. Those making over £50,000 may see a marginal tax rise.
The policy u-turns all came in less than a fortnight after the first tax u-turn – reversing the plan to abolish the additional 45% rate of tax.
#3 UK talent to move abroad for a better way of life
A consensus among the UK’s self-employed that the current Conservative government is waging a tax and worker rights war against them has only grown since the pandemic. In July, the FI reported that the government responded to an employment status consultation held four years ago, confirming that contractors operating inside IR35 will not receive employment rights despite paying employment tax.
It means the government effectively refused to abolish ‘zero rights employment’, said employment status expert, Qdos, following the consultation report.
Not surprising then that digital nomad stories got traction in 2022, especially for UK freelancers fed up with the cost of living crisis and IR35 policy uncertainty. The FI reported on the best countries to become a digital nomad based on visas, cost of living, safety and quality of work and life.
One freelancer told the FI that if you move abroad you’ll get preferential treatment from UK clients:
For me, emigrating just before Brexit was an easy decision because fewer than 20% of my clients and less than 10% of my business’ revenue were from the UK, especially since there are countries in the EU with taxes that are 2 to 5 times lower than in the UK (for example, 10% flat rate corporation tax, 10% flat-rate income tax, 5% flat rate dividend tax).
But what I found shocking was that having emigrated, it seems that, quite absurdly, I would actually have preferential treatment from prospective UK-based clients when it comes to contracts that would be considered inside IR35.
The FI looked into whether IR35 could still follow UK freelancers abroad if they had UK clients.
Penny Simmons, Legal Director at Pinsent Masons said in the FI report: “A non-UK tax resident worker could still fall within the scope of UK income tax if they undertook work in the UK that was more than ‘merely incidental’ to the work undertaken outside the UK. However, current HMRC guidance suggests that a worker should be physically present in the UK to perform duties in the UK. There is no indication that a worker would be performing duties in the UK by attending online meetings with UK-based attendees.”
However, one area that could get contractors and their UK clients in hot water with HMRC is “permanent establishment risks” when it comes to a “person acting on behalf of the company habitually exercises authority to conclude contracts in its name or has a key role in concluding such contracts,” said Simmons.
#4 Umbrella company workers exposed to wage and security risks
The Optionis ransomware attack
In January 2022, shockwaves were felt through the umbrella company worker community when it was reported that certain umbrella companies had their payroll software hacked. The ransomware attack left some contractors unpaid for weeks without access to their umbrella accounts.
An estimated 28,000 contractors that used services provided through Optionis Group, the private equity-backed payroll and accounting group, were not only seriously concerned about continued late payments but having their personal data sold on the dark web.
Optionis owns umbrella companies including Parasol, and operates a number of contractor-focused accountancy firms, including Nixon Williams and SJD Accountancy, all understood to be tackling the after-effects of a January ransomware attack.
Optionis’ statement about the cyber security incident, can be found in this report here.
The Optionis Group Data Breach is being managed by Keller Lenkner – Data Breach Expert Cybercrime, Data Rights and Data Breach Lawyers Part of Keller Lenkner UK. The law firm has a page for Optionis Claims – ThomTax.
Dustin Gorski, a freelance software engineer living in London, trading as Dusted Codes revealed to The Freelance Informer what it was like to be affected by the Optionis ransomware attack and what he did to rectify his situation.
Gorski – who has wide experience in cyber security – was first contacted by SJD by email on January 14, 2022. The message said the company was “experiencing significant issues relating to its systems” – without going into detail – and assured clients they could still contact their accountant.
“There was no mention of a cyber security incident at all making customers aware that their data might have been compromised,” said Gorski.
“I was hugely frustrated because very quickly customers like myself learned from Twitter and other online forums that the entire group which oversees SJD, Nixon Williams and other accountancy firms has been hit by a ransomware attack,” he said.
The freelancer had not received any communication from SJD for weeks that his data was compromised and in the hands of criminals.
SEB scrapped, alleged umbrella worker payslip skimming
At the end of 2022, the UK government had shelved plans to introduce the Single Enforcement Body (SEB) for employment rights, which included a strategy to regulate the umbrella industry. The SEB was to be introduced to protect workers’ rights and prevent bad practices in the labour market.
The news was a blow to freelancers following alleged reports of umbrella company payslip skimming and withholding holiday pay.
Examples of alleged reports included those of Contractor Voice, an advocacy news and campaign site for contractors, which announced on its website and social media channels that umbrella company Orange Genie, an FCSA member for over 10 years, had “been unlawfully and systematically taking money from contractors, week in, week out for many years.”
Contractor Voice said that it has collected evidence through umbrella worker payslips voluntarily submitted to check for suspected skimming.
The report said, “Unbeknown to contractors, £2 per week has been incorrectly deducted and disguised on the payslip in the deduction called “Employment cost, including Employer National Insurance.”
Orange Genie representatives have denied the allegations.
On the back of those allegations Contractor Voice reported that another umbrella company had been ‘skimming’ millions from contractors’ payslips – reportedly amounting to a 1.5% deduction from contractors’ pay.
Yet, the umbrella company accused had come back with a statement refuting the allegations of skimming. Colin Gunnell, Chief Executive Officer of Liquid Friday, made a statement, published on its website, in response to Contractor Voice’s accusations.
In the statement, Gunnell, said:
“All elements from PAYE Tax and National Insurance to our company margins and employment deductions are shown and explained to contractors via the Onboarding Consultation, Key Information Document, Key Facts Document, Personal Illustration, Payslip and Remittance Advice.
“In addition, Liquid Friday contacts all contractors further to their initial new assignment payment to ensure they are fully aware of all deductions and answer any questions they have. This is above and beyond what a business is required to do in line with the FCSA code of conduct in our ongoing pursuit to be the best contractor service delivered within the industry.”
Tribunal: contractor payslip confusion continues
Since these allegations have been made, a tribunal has highlighted payment and payslip confusion for umbrella workers.
In the case of Zojota vs Umbrella Company Limited, a multi-million-pound company, the former claimed their employer wrongfully took money from their payslip in the form of national insurance contributions and apprenticeship levy money.
However, the company claimed any deductions were coming from an assignment rate – charged to a business in exchange for the worker’s services – rather than Zojota’s pay.
An HR magazine report said that the claim “was dismissed as the tribunal found no unauthorised deduction of pay occurred.”
The tribunal judge said: “It is the respondent’s obligation as the claimant’s employer to make relevant deductions from that fee, which include employers’ national insurance and the apprenticeship levy before determining the claimant’s gross salary. Once the claimant’s gross salary is determined, the respondent then deducts tax and national insurance, leaving the claimant with his net pay.”
Fred Dures, founder of umbrella payroll compliance auditor PayePass, said the case highlighted the confusion felt by umbrella workers when it comes to payments.
Speaking to HR magazine, he said: “The confusion, in my opinion, stems from employees not properly understanding and accepting that what the umbrella is paid by an agency or end-client is actually its fee and not an employee’s to keep.”
The Pimlico Plumbers unpaid holiday leave case
Unpaid holiday leave is also a confusing matter for contractors. However, more clarity has emerged following a landmark case.
During his six-year engagement with Pimlico Plumbers, Gary Smith, was never given any right to paid annual holidays, according to Michael Ford, QC at Old Square Chambers. But the heating engineer has seen a change of fate with the Court of Appeal deciding he could recover compensation for all the unpaid leave he took throughout his employment. Read the full report here.
“In a decision with major implications across the gig economy and beyond, the Court of Appeal has ruled that workers who were incorrectly classified as independent contractors and were not paid for holiday can claim compensation for the whole period of their engagement,” stated law firm Lewis Silkin.
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