Budget 2018: Contractors call for consultation
Contractor organisations have warned the Chancellor against tax raids on freelancers in the upcoming Budget and argued that Philip Hammond should ensure the most flexible sections of the economy are able to offset any temporary shock to the economy of leaving the EU.
While the UK has seen an unprecedented growth in the number of freelancers and microbusinesses over the past two decades, this has given rise to the perception from some inside and outside government that this eroding the UK’s tax base.
Over the past few years we have seen measures aimed at combatting this, including off-payroll working reforms and the now infamous scrapping of the Class 4 National Insurance changes.
But with the Budget looming large on Monday, will the Chancellor return to the UK’s two million freelancers to meet increased government spending commitments, look to free up the nation’s flexible workforce, or await further consultations, perhaps based on the Taylor Review.
Here are three areas that may see change following next week’s fiscal fun-day.
Off-payroll working for the private sector
It has been over a year since the off-payroll working (IR35) rules were introduced for the public sector, and in May this year the government launched a consultation to examine extending these rules to the private sector.
While HMRC has lauded the public sector changes as a success, with an additional £410m of income tax and NICs paid since the reforms were introduced, contractor organisations claim that there are problems with the implementation of the rules and large numbers of contractors have walked away from bodies such as the NHS.
Julia Kermode, chief executive of the Freelancer & Contractor Services Association (FCSA) told AccountingWEB she was expecting Mr Hammond to announce the private sector roll-out of the off-payroll (IR35) rule.
While she admitted that government’s mind seems to be made up on the issue, Kermode she urged the Chancellor to make any changes in 2020, rather than 2019.
“Rushing the implementation will have a devastating impact on businesses,” said Kermode, “a better outcome would be a proper consideration of the alternative models that various stakeholders proposed in the summer, and perhaps look to implement any changes alongside the outcome of the separate employment status review.”
This call was echoed by Dave Chaplin, CEO of ContractorCalculator, who believes that given a year’s grace to convince policymakers, based on empirical evidence, that the move is a “a really bad idea” is the best chance they have of defeating the move.
“I shudder to think how much time and money has been spent already in the sector based on the fear of the roll-out happening,” said Chaplin. “It is time and money which could have been spent on more productive matters.
“The fear of future legislation costs UK Plc money. HMRC and [the] Treasury should be more responsible and provide better certainty.”
The FCSA’s Julia Kermode also warned those who work through personal service companies to look out for potential changes to the VAT threshold, particularly as the Office of Tax Simplification is currently considering responses to its call for evidence on the VAT threshold made earlier this year.
“If the threshold was to be lowered, this would not only mean more businesses being required to charge VAT but would also increase the number of businesses affected by making tax digital for VAT which comes into effect from April 2019,” said Kermode.
All organisations AccountingWEB spoke to seemed to think it unlikely that the Chancellor will revisit national insurance for the self-employed, given the outcry last time he strayed into this territory. However, despite this Julia Kermode commented that the self-employed community “will be holding its breath”.
Lee Murphy, accountant and founder of cloud accounting software Pandle, called the decision not to go ahead with the abolition of Class 2 national insurance a mistake, not only for the relief on sole traders but also the simplification of the national insurance system.
“This would have been a great move to include all NI for sole traders under Class 4 NI and simplify the system,” said Murphy.
Will the Chancellor go through with his planned reforms on Monday? And what should he be doing with the burgeoning contractor industry? Let us know your thoughts in the comments below.