General Election 2015: Brolly contractors set to vote

The outcome of Britain’s most unpredictable general election in most voters’ memories could have significant implications for umbrella company contractors, writes Derek Kelly, managing director of Parasol.

Income tax

Much like other PAYE employees keen to keep hold of more of their hard-earned cash, umbrella contractors should take particular interest in the different parties’ policies on income tax and National Insurance. David Cameron’s vow to introduce a law guaranteeing a freeze on both until 2020 if the Conservatives emerge victorious is therefore likely to be appealing.

Labour, for its part, has sought to nullify a potential Tory line of attack by ruling out any increase in the basic or higher rates of income tax – though Ed Miliband’s party has pledged to restore the 50p top rate for people earning over £150,000.

Contrast this with the Conservative pledge to raise the 40p threshold to £50,000 – a move the party claims would take nearly a million middle-class Britons out of the band and give £50,000-plus earners a £1,300 boost – and it seems likely that professional contractors will find the Tory offering more palatable.

It is worth noting, however, that the Tory tax cuts are not expected until after 2018. Furthermore, according to the politically neutral Institute for Fiscal Studies, it’s “very difficult” to see how their cuts would be funded.

Meanwhile UKIP has made some eye-catching commitments, including outdoing the Conservatives by vowing to raise the 40p threshold to £55,000, and introducing a new ‘intermediate’ 30% rate on incomes ranging between £43,500 and £55,000. The latter pledge would affect middle-earning contractors, assuming Nigel Farage’s party is voted into government. The former banker says his “longer-term aspiration” of a UKIP government will be to create an income tax structure of a basic rate of 20%, an intermediate rate of 30%, and a top rate of 40%.

Let’s not forget, however, that Nigel Farage’s self-styled “people’s army” has the luxury of knowing it won’t be in a position to dictate, and be held accountable for, post-election government policy. The most we believe that it can realistically hope for is to win a handful of seats and exert a small degree of influence on a Tory-led administration, whatever form that may take. 

But back to income tax. The Liberal Democrats have had little to say on the top rate, and have instead focused on help for lower-paid workers by promising to raise the income tax threshold to £12,500.

Corporation tax and VAT

Both main parties have ruled out a rise in VAT, but there is a clear divide when it comes to corporation tax. This is potentially a pertinent area for umbrella contractors, given that a lower rate will benefit the umbrella companies that employ them, the recruitment firms that help them secure assignments and the organisations that utilise their skills and knowledge. Corporation tax, which stood at 28% per cent when the coalition took office five years ago, is now just 20% – the joint lowest in the G20.

Mr Miliband and shadow chancellor Ed Balls have said that Labour will re-instate the 21% rate if the party wins Thursday’s poll. The Greens want to go even further by introducing a 30% rate.

Meanwhile, Nick Clegg says the Lib Dems would levy a ‘supplementary’ corporation tax on banks – a move that would sting contractors’ clients in the financial services sector, potentially creating a knock-on impact on contractors themselves in the shape of stagnant rates and scarcity of assignments.

Contractor expenses and tax avoidance

Virtually every party has pledged to clamp down on tax avoidance (or evasion, depending on the manifesto) by multinational corporations and/or wealthy individuals. This is hardly surprising given the state of the public finances (net borrowing was £87.3bn in 2014-15, with the current budget deficit at £56.9bn and government net debt hitting 80.4% of national income).

This commitment to tackling tax avoidance is laudable as well as predictable. Anyone who wants to see a level playing field for individuals and businesses will welcome heightened scrutiny of tax dodgers. Contractors who choose to work through umbrella companies, which have themselves come in for a decent amount of criticism and scrutiny recently, will be hoping they are not unfairly targeted.

These companies are already at the heart of existing plans from HM Revenue & Customs to restrict travel and subsistence relief for their employees, where they are working under the ‘supervision, direction and control’ of the end-client. The plans were outlined at Budget 2015.Yet as skilled professionals who operate autonomously during assignments, we believe that umbrella company contractors will not be affected by the new rules, and therefore have nothing to fear.

However should Ed Miliband replace David Cameron as the occupant of 10 Downing Street after May 7^th, the main source of anxiety for umbrella contractors will be that his party’s recent anti-umbrella rhetoric translates into a damaging and unwarranted attack on how they operate.

Once in power though, and assuming he’s presented with the full facts, I am personally confident that a Labour-led administration would adopt a sensible position towards the UK’s growing and economically vital umbrella contractor workforce.

Editor’s Note: Related Reading –

Miliband refuses to reach out to contractors

Labour hit for downbeat view of self-employment

Self-employed, IT and techie inspire Miliband