When it was formed five years ago, the Professional Contractors Group may have been perceived as a small, aggressive single-issue lobby group. Now it means business – in a much broader sense of the term. Simon Juden, the PCG’s new chairman, may have just stepped into his first senior role in business – but he is on a mission.
The 35-year-old has been involved with the organisation since its formation in 1999, when it boasted a membership of four. Now his objective is to become the ‘voice of the freelance community’.
‘I have a clear vision for what I think the PCG should be,’ Juden says.
‘Firstly it should be the voice of freelancers, talking to government and increasingly talking at a European level. And secondly, it should be at the heart of the freelance community and all parts of the freelance cycle, nurturing and encouraging people to do what they do best. And when they are prevented from doing that, it should be there for them.’
Originally formed in response to controversial tax legislation IR35, the organisation soon expanded from its focus group remit, to take on a broader role and represent freelancers on all sorts of issues. ‘It quickly became obvious that there was far more that united freelancers than simply a tax law. In April 2000, it was decided that we would form an association to do exactly that, which at the time seemed like a very strange concept, now it seems perfectly natural.’
Juden’s youthful enthusiasm and passion is obvious. More than anything, he wants to take the body – which today represents around 11,500 UK freelancers and IT contractors – even further.
‘In the early days, we were often perceived as being quite in your face. These days we are much more proactive. We work with people and we talk to people – we don’t shout at them. That’s really borne true because our relationship with the government is now really quite good.’
It is this relationship that Juden aims to intensify and extend over the next 12 months, mainly in an attempt to halt, or – even better – abolish one of the main issues the body has with the government and the Inland Revenue – namely IR35.
This complex legislation has haunted the PCG and its members since IR35’s creation in the 1999 Budget and is, according to Juden, the biggest bugbear the body has against current tax legislation.
IR35 came into force in April 2000 in an attempt to clamp down on freelancers providing their services through a limited company or a partnership as a means of avoiding tax. This meant and still means that IR35 allows the regulator to treat fees paid to a company or a partnership as an individual’s personal salary, despite the PCG bringing more than 450 cases before Revenue commissioners (with another 100 in the pipeline).
The PCG and Juden have argued for four years that the law is unclear, incomprehensible and harms small businesses, and that professional contractors are genuinely in business and therefore should not be subject to what it sees as unfair taxation.
Inndeed, the PCG’s positioning paper on IR35 describes the law as the ‘imposition of a 19th century definition of employment onto the 21st century knowledge economy’.
Juden says the law simply ‘goes against all common sense’ as well as the wishes of a government that claims to champion entrepreneurialism.
‘The problem is that to define whether you were or were not employed or treated in the Revenue’s terms as a “disguised employee” is very difficult. Even the High Court is continually asking the government to simplify the IR35 test.’
Juden, who describes the law as a ‘blunt instrument’, may have a point, particularly as the PCG has lost only one case out of a total of around 460. With so many cases against the Revenue, does this mean that IR35 is fatally flawed and should be abolished?
‘There’s no way any sensible person would argue in favour of IR35. I know there’s a review coming up later on this year. Hopefully what will come out of this is a vehicle whereby the Treasury and Revenue can accept reasonable amounts of tax but also where freelancers can organise their affairs in a straightforward and easy manner.’
Juden would welcome some kind of reform, although its eradication would clearly be more favourable for the PCG’s youthful chairman.
‘It’s the most complex piece of legislation I’ve ever seen, especially for freelancers. One day I hope it will be abolished. I can’t imagine the Revenue doesn’t have some sort of feeling as to how much money it’s going to get out of it and how much profit it will make, but it must be hugely expensive to administer.’
Figures on how much the tax regulator has paid to cover its losses before a legal blend of courts, commissioners and high commissioners remain unclear with the Revenue unwilling to comment.
Juden, however, says the PCG pays around £1,000 to cover each of its members per case – mere chicken feed in terms of how much a contractor can be charged if caught by IR35.
However, IR35 does not simply affect people’s financial affairs. According to Juden it has also caused many PCG members considerable stress, affected many lives and even damaged members’ health – something he sees as a particularly unfortunate and upsetting side effect of IR35.
‘We have personal contact with members, whether they are ill or not, but the most traumatic and stressful thing is if you’re someone who’s run their own business and minded their own business and then suddenly they get this grey envelope. Inscribed on it is HM’s Secret Service on the top left-hand corner it says: “By the power vested in me I hereby duly ask for £40,000”. It’s scary.
‘We’ve just concluded a case that has gone on for three and a half years. There was a lot of stress in this person’s personal life because of it and that’s really sad. Obviously, there’s nothing we can do about the stress, but what we can offer is peer support and experienced representatives who have been there before and who they can talk to.’
IR35 may be the main thrust of the PCG’s activities, but Juden is keen to show the body is far more than a single-issue organisation.
‘We need to be more active on this front. It might just be a communication issue, in terms of letting people know what we’re doing. Section 660A is also a measure that needs to be addressed and we’re very involved.’
Two weeks ago, a three-day S660A test case at the High Court between small IT contractor Arctic and its owners Geoff and Diana Jones concluded, but there has still been no firm decision from the Revenue, resulting in more uncertainty for small businesses. For Juden it’s another example of flawed legislation that goes against the UK’s tax culture.
‘I’d like to see the Revenue apply 660A in what I view as a fair and straightforward way. You have guidance from tax bulletins, saying that, for example, if you’ve got significant capital assets then Section 660 doesn’t apply. The Revenue gives examples, but where’s the cut-off? If you don’t know where the cut-off is, how are you supposed to self-assess your tax?
‘It shouldn’t be difficult for a reasonably able person to assess their own tax with only a reasonable amount of effort. And yet it’s literally impossible to self-assess in those sorts of situations. Simple, straightforward taxation is one of the key things we want to see.’
Juden is defiant in his message to government, but his strategy to change the fortunes of thousands of freelancers and contractors is to employ a strong sense of mediation and a measured and meticulous manner – and he’s getting results.
As long as he remains at the PCG, it can only be a matter of time for ‘fair and equal’ tax measures to be implemented for the so-called ‘disguised’ community he represents so well.
THE PCG STANCE ON IR35
‘IR35 has created a period of uncertainty during which many small consultancy companies have been unable to determine their tax status, or have been wrongly classified.
IR35 has meant the imposition of a 19th century definition of employment on to the 21st century knowledge economy.
This has created many anomalies and made it difficult for small businesses, their advisers, and tax inspectors to be sure where the boundary lies.
The PCG remains opposed to IR35 in principle. Nevertheless, the PCG is committed to working with the Inland Revenue and the courts to establish a workable definition of employment as it applies in the modern economy.
In April 2001, giving judgment in the PCG’s judicial review of IR35, Mr Justice Burton said: “It is essential to any consideration of the common law test as to whether an individual is trading as an employee or as an independent contractor, that consideration should be given to whether he is in business on his own account.” The PCG welcomed this ruling as confirmation of our understanding of the law.
The PCG believes that professional contractors are genuinely in business and therefore, on a correct interpretation of the law, are not subject to IR35.
The PGC defines a professional contractor as an individual who offers professional services on the open market, whether as a sole trader or through a partnership or a limited company. The PCG believes that under those circumstances it is wrong in law to treat each individual engagement as a “disguised employment” under IR35. There are legal precedents for this, such as the treatment of actors as self-employed, and the PCG believes that the courts will ultimately find that the same considerations apply to professional contractors.’