Tax & admin 8 September 2016

The regulatory burdens that are hindering the success of freelancers

Freelancer workers are often hit hardest by regulatory change
Freelancer workers are often hit hardest by regulatory change
Dave Chaplin, CEO and founder of ContractorCalculator, outlines the impact that regulatory burdens have had on freelancers and contractors to date and how red tape will continue to hinder the UK’s flexible workforce and, by default, the UK economy.

The Conservative government is clearly not a fan of the UK’s hard-working freelancers and contractors Theresa May, and before her David Cameron, and the Tories have paid lip service to claiming they support the UK’s flexible workforce but in reality this group of workers has been faced with an ever increasing set of regulatory burdens over the last decade that seems bent on penalising them for their hard work.

Whilst in the last Budget the chancellorpledged to eliminate Class 2 NICs and gave a 1, 000 tax break to those who sell or rent online, other measures introduced have seen an increase in costs and have restricted means of engagement for contractors.

The 2016 Budget brought with it a real threat to future IR35 reforms which will only serve to do more harm to a freelance workforce that has been propping up the UK economy through the 2007 recession and beyond.

The UK’s decision to leave the EU will also bring uncertainty and once again, freelancers could play a key role in keeping the UK economy going but they face restrictions, particularly in the public sector which is already in a state of flux and suffering skills shortages even before the impact of Brexit is truly felt.

From April 2017 the government is poised to reform IR35 for public sector engagements believing that HMRC is losing out on 400m in tax annually from 20, 000 contractors who work in the public sector.

It plans to move the onus of evaluating the workers IR35 tax status from the worker’s own company to the public sector body or agency/third party paying the company, who will be liable for collecting taxes using RTI. Some believe that it is only a matter of time before the same legislation is introduced in the private sector.

But the plan is flawed and government services will be decimated as 80per centof contractors will abandon the sector rather than accepting a contract outside IR35 and lose about 20 per cent of their income.The government will also lose out on 115m in taxes and could face an increase of 610m rise in costs per year for hiring the same workers on the payroll.

These were just three findings of a recent survey conducted amongst 500 contractors. The plan is ill-thought through, unworkable and unachievable.

And let’s not forget the dividend tax hikes that cost limited company contractors significant amounts of extra tax. A 7.5per centincrease in each tax band is pretty steep and is set to cost contractors about 1, 700 more in tax each year.However the government justifies such a move as a legitimate way of clamping down on “tax motivated corporation” and “levelling the playing field” between employees and freelancers and contractors.

One move that could be said to be truly levelling the playing field is happening between the variety of contracting trading vehicles as contractors who operate through umbrellas have felt the ire of government policy in equal measure as limited company contractors.


 
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