Risk blindness and risk denial are not just found in the boardroom, they also feature in government as well. The supply chain crisis now unravelling through a shortage of key workers like lorry drivers and abattoir workers is not due to Covid or Brexit, it is due to changes in the tax regime introduced in April 2021 which render it more unattractive to work in Britain under IR35 rules.
Introduced over twenty years ago IR35 was an attempt to stop employers failing to paying National Insurance (NI) contributions due. For those unfamiliar with the UK tax system: NI is a government levy to cover state costs of hospitals, schools, pensions etc. It is not liked by employers who don’t benefit from it and it is not liked by employees who see it as an indirect tax. Governments like it because it is collected by employers who are also responsible for correct tax coding of employees.
Employers can avoid the obligation to pay NI contributions, and liability for incorrect tax coding of staff, if workers are engaged as self-employed contractors. In encouraging this practice employers pay only the fee invoiced by the contractor, thus avoiding both the uneconomic cost of NI contributions and the risk of liability for unpaid tax. In rolling out IR35 to more sectors from April 2021 the tax system (HMRC) has unwittingly set in motion the dominoes to upset the UK economy.
Many key workers with skills that suit contracting are reluctant to embrace this process, especially those with an option to work in other tax jurisdictions. While IR35 acts to ensure the correct tax is paid in the UK, it is a significant disincentive to foreign casual workers who don’t want the added bureaucracy. The Association of Independent Professionals and the Self-Employed (IPSE) www.ipse.co.uk/ir35-hub-ipse.html warned of the impact of IR35 from April 2021.
That Britain has the highest proportion of self-employed workers is not due to an innate spirit of entrepreneurialism, but to an iniquitous tax system that encourages workers to register as self-employed in order to get work. While employers are driven to hire contractors rather than recruit employees, we are heading towards supply chain disruption and a ‘winter of discontent’.