You're being fed dogma and propaganda
There's no doubt that some officials, for whatever reason, bend your ear with all sorts of un-evidenced nonsense, so here's some of the myths you've been hearing exposed
Myth: Contractors use limited companies just to avoid tax
No, this just isn't true. Contractors would often actually be better off if they were sole traders. The problem with that is that the protection of limited liability isn't available to sole traders but is pretty key to someone who might helping build a nuclear power station or designing banking systems. In addition, almost all end-users of contractors insist on a limited company model so that they're protected from tax claims which could arise if a sole trader fails to pay their taxes.
Myth: Contractors are just disguised employees
No, they really aren't. Contractors are small businesses and want to operate like that because they just don't want to be employees. IPSE has consistently found that more than 75% of contractors do not want a permanent job. Contractors enjoy the variation and flexibility of assignments, they enjoy the choice of the tasks they take on, they enjoy being able to dip in and out of contract. They often cite office politics and a dislike of hierarchical structures as the reason they want to stay as contractors. They rarely refer to taxation as a reason for being a contractor, but they do recognise that there is, as there rightly should be, a reward for being in business and taking on all the risks that entails.
Myth: Contractors aren't necessary, employment solves all the issues
Yes they are. Can you imagine a business being forced to take on permanent employees for a two- or five-year project? Say a business wins a bid to build a new stadium which over the course of the project meant they had to hire 200 employees in engineering positions. At the end of the project they end up with 200 members of staff and no work for them to do, but they have an obligation to provide work to them or to make them redundant with all the costs of that. This would force up the costs of that stadium. What suits the business is the engage the specialists they need, just for the time they're actually required.
They get access to a skilled, experienced and knowledgeable group who’ve done this before, who can sell their services to the construction company for just the amount of time needed and then move on to a new client.
That's the real way business works, and the way businesses need to work in the modern world
Myth: All contractors are being taken advantage of by unscrupulous employers who are avoiding their employment obligations
Whilst it's true that there are a very few businesses which have done this, it's impossible to believe that this is commonplace or widespread. Whilst, for example, a whelk-picker may be conned into becoming self-employed by unscrupulous gang masters, it's beyond credible that a planning specialist in nuclear power station construction hasn't made a considered and careful decision to start their own business.
Myth: HMRC say they're losing £900m a year in taxes and it's growing
They may say this, but despite many, many requests both in Parliamentary questions and in Freedom of Information requests, they’ve never been able to actually demonstrate just how they arrive at this number. Ask them to show their workings and suddenly they become very, very quiet. IPSE has come to the conclusion that their figures are more "finger in the air" than properly evidence-based.
Myth: Contracting adds no value to UK plc
Wrong. Research by Kingston University shows that contracting, freelancing and self-employment is worth £271 billion to UK plc.
Further research by Professor Andrew Burke shows that they enable their client to be more innovative.
Myth: PAYE and full-time employment is the only workable model
This is an anachronism. Full-time employment was almost unheard of prior to the Industrial Revolution when the world of work changed, and that and PAYE are relatively new models. With the advent of modern systems, PAYE is in fact old-fashioned and constraining - but it is really, really easy to administer and perpetuate so it's seen by HMRC as the ideal.
The world has changed again, the internet knows few national boundaries, the world moves at a far faster pace than ever before and modern working has to recognise this and the requirement for flexibility and agility. In fact, full-time employment is likely to be seen, in just a few years, as a blip in the arc of the progress of modern work.
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