General Election 2015: PSC contractors set to vote

We are within sight of voting day in the most hotly contended General Election in years. With no party clearly in the lead, the safest bet for limited company contractors would be another coalition, but between which parties and on what terms? These questions need to be addressed first before we can really answer with any confidence how Personal Service Company contractors will be affected under the next Government, writes Duncan Strike of InTouch Accounting.

Uncertainty is the only certainty

The only party that openly recognises a coalition is the SNP. Throughout their manifesto, the SNP categorically states their focus is keeping the Tories out. ContractorUK has looked at specific elements of each party’s manifesto that are of interest to contractors and freelancers.

But if we agree the outcome will be a coalition there can be little clarity found within any manifesto on what trade-offs will materialise. Can anyone vote for a single party based on their own manifesto when the reality is likely to be a compromise between two parties, none of whom will say with whom?

Taxing times?

Both the Conservative and Labour manifestos talk of fixing the rates of Income Tax, National Insurance (NI) and VAT. Although, Labour actually wants to increase the additional rate to 50%, leaving basic and higher rate the same. The Tories want to increase the earnings level before higher rate applies.  The Greens and SNP want to see a significant increase and whilst the Liberals are silent, they want to extend NI. UKIP proposes a 30% interim rate but long term reducing the highest rate to 40%.

There is much coverage on the varied claims over personal allowances, pensions contribution tax relief, child care and National Minimum Wage (NMW) all of which are of interest and apply to many contractors, but there has been much less coverage on what the various parties say specifically about freelancing, contracting and the forthcoming changes or proposals in employment law, employment status, business expenses and, of course, IR35. All of which will have significant effects on take home pay and the flexibility in the market. So the outlook for these areas and how each party will legislate is still unclear at this stage.

We can be more confident that there are fundamental changes round the corner that will affect tax relief on expenses, taxation of dividends - especially if the Liberal Democrats have a say - employment status and employment rights for agency workers. Just about all the main parties have talked about these topics so the impact on not just take-home pay but the sector as a whole is what contractors and freelancers  will likely consider before making their decisions on the party they wish to support.

What Labour (and the other parties) will do to the labour market

Zero-hours contracts are clearly in the cross hairs of all the parties. Most have commented upon them and are looking to either abolish them or limit their effectiveness after 12 weeks. The Tories are the only ones looking to remove any exclusivity that restricts an employee to that employment alone, which seems to be a more balanced approach.

Meanwhile, Labour is looking at removing the loophole that allows permanent jobs to be replaced by agency workers. In addition, the construction industry looks set for a further change in the battle between self-employed and employed if Ed Miliband enters No 10 on May 8th. Their closest associate (whether they like it or not), the SNP, say they will work closely with the unions on the matter (which is not always good news for  lower paid freelancers and contractors) but will support its oil and gas sector, which contractors in this sector will welcome.

All the parties appear to be looking at self-employment but Labour has gone so far as stating in their manifesto that they will bear down on disguised self-employment. At best, all this means is that there will be no let up on new legislation that could potentially limit temporary workers’ choice and the tax reliefs they currently benefit from. At worst, it could mean the introduction of new legislation (“strict deeming criteria”) that Labour says it looked at in 2009/10. And as past consultations have demonstrated, HMRC and Government rarely understand the flexible, temporary worker market so the prospect of a legislative sledgehammer being used to hit PSC workers cannot be ruled out.

Tinkering by the taxman, Treasury and OTS

We already know that umbrella workers’ expenses are under attack from 6 April 2016 as confirmed in the Finance Act passed before the election. Future planned consultations may extend this further. The hope must be that the next government, whatever its hue, decides that scrutiny of contractors’ expenses by both the Treasury and HMRC is both balanced and focused and that, for now, flexible workers don’t need fresh legislation foisted upon them if they are to flourish for the good of the economy.

More positively, April’s Budget saw the Tories strengthen their support for the Office for Tax Simplification (OTS). The OTS’s last report looked at self-employment (which despite stating otherwise clearly included IR35, and considered changes that will affect PSCs, umbrellas and temporary workers in general). No doubt, whichever party gets voted in and who supports the ongoing work of the OTS will continue their focus on our market.

But the Tories’ current partners, the Liberal Democrats, want to make a tax simplification of their own as they have referred to a necessary refocusing of Entrepreneurs’ Relief (ER) in their manifesto. This could mean they propose introducing restrictions on PSC contractors’ use of ER when closing down and distributing accumulated retained profits.

More recognised as Lib Dem policy is their desire to lift more people out of tax by increasing the personal allowance. Supposedly aimed at the same section of the electorate is Labour’s proposal to increase the NMW to £8. But should contractors really be that interested?

Changes that stop false self-employment and abuse of temporary low paid workers are for the good of everyone, but not if the hammer head hits the innocent and genuine self-employed. So it may be that some umbrella and PSC contractors will be determining who to vote for by looking to stop measures that aren’t targeting them but which could adversely affect them. This seems all the more likely given that none of the parties have come close to wooing PSCs in any substantial way.

Final thoughts

In light of this general absence of support for contractors, another big element likely to influence their vote is sector-specific proposals. If, for example, I’m looking to build on my IT contracting career with oil and gas companies, I’m surely leaning towards the SNP (which want to support the O&G sector), and away from those that don’t, or just aren’t mentioning it.

However akin to the Budget and Autumn Statement announcements, there are other proposed changes buried within all the parties’ manifestos that may have a far greater and immediate or long-term effect on the contracting and freelance market sector. So there may be only a few hours before we go to the polls, but if you are looking for the devil in the detail you won’t find it within the manifestos. My vote is for someone who is going to champion contracting; not challenge it, sadly none of the parties seem to meet that mark.

Editor’s Note: Related Reading –

Entrepreneurs’ Relief seen as ripe for reform

Only time will tell if contractors forgive Labour for dreaded IR35

A contractor’s overview of the 2013 party conferences