The Autumn Statement announcement last week delivered some destructive news to the UK contractor community, particularly those working in the public sector. There had been discussions around the topic of contractor tax in the Budget, however, the concerns have now materialised as the government push ahead with their plans. How does this affect you?
Small businesses are integral to the UK economy – why are they under attack?
The self-employed workforce is key to a strong UK economy. Right now, businesses are able to appoint and utilise highly skilled workers on flexible terms, because of self-employment. The flexibility gives the UK economy a competitive edge, but it needs to have government support to continue to progress.
Contractors with Personal Service Companies in the public sector alone, contribute £3.5billion each year to the UK economy. So why are they being targeted?
Well, the government have chosen to pursue this particular sector, on the basis that they believe tax revenue has fallen due to incorporation.
The Office for Budget Responsibility (OBR) has highlighted that incorporation is generally not driven by a motivation to save tax. Even HMRC have passed comments to the Chancellor, yet still their plans continue.
Whilst reducing tax avoidance across the board is always a positive impact for the economy, and for work ethics, these changes will certainly affect UK contractors negatively.
What CHANGES HAVE BEEN PROPOSED?
From April 2017, public sector organisations, or the agency, will be required to determine the IR35 status of engagements. Tax will be applied in the same way as for an employee if IR35 is deemed applicable.
Where the key issue lies, is it’s likely that a “one size fits all” approach could be taken, which would almost certainly not be a positive outcome for private sector contractors.
Research by IPSE shows half of public sector contractors could choose to leave contracting. The rest may increase their day rate.
This is not to mention the issues that could arise regarding employment rights. Public sector services could be seriously under-resourced in future years to come.
If you are a private sector contractor – are you safe?
Many experts believe that this new legislation could be a test run to roll it out for contractors in the private sector too.
So, in short, for now the changes won’t be so applicable to those contractors in the private sector, although, it could be just a matter of time.
If you work or plan to work in the public or private sector as a contractor – let us know the action you’ll be taking and make sure you seek advice beforehand so you have all the up-to-date information.