Five pledges contractors need the next government to make

In the run up to the general election on June 8^th, each political party has the opportunity to win the votes of the UK’s contractor workforce, which is growing in size and influence, writes Andy Vessey, senior tax adviser at Qdos Contractor.

The latest polls show the Conservatives as big favourites to win another term in parliament. But as we all know, the very same polls failed to predict the outcome of 2015’s general election. Polls also neglected to predict the UK’s Brexit decision.

Whoever is to win this election needs to show their commitment to the UK’s 4.8million freelancers, contractors and self-employed people. We calculate that no less than 11 of the Conservative’s seats contain a high proportion of self-employed voters, meaning a Tory majority might just hinge on their ability to win over independent workers. It is vital therefore that the party which has, for so long, been associated with supporting business, offers hope and encouragement to freelance consultants, professional contractors and the ever-growing self-employed vote.

That said, absolutely any party that fancies their chance on June 8th should be looking seriously into the following five policy issues, if they are to convince freelancers and contractors -- increasingly disillusioned by the current government -- that they are the party to represent those in business on their account.

1. Limited Cost Traders on the Flat Rate VAT Scheme

The introduction of this ‘limited cost’ category on the VAT Flat Rate Scheme from 01.04.17 merely punishes the vast majority of compliant businesses for the sins of the few abusers. This requires a re-think as it adds a significant level of complexity on small business owners. Action by HMRC would be better targeted against the small number of those who devise avoidance schemes misusing the FRS. We could name names, but we won’t!

2. Self-employment still undefined in 2017

A lack of definition of self-employment gives rise to uncertainty. The current system of assessing self-employment involves examining a variety of status tests used for tax and employment law. A sound and definitive specification of the characteristics of self-employment would reduce risk and administrative burdens. It could be that the (soon-to-report) Taylor review may have influence on a newly elected government in this respect.

3. Tax and NIC alignment

This is a longstanding project and one which is not likely to happen in the immediate future. Nonetheless, there should be an ongoing commitment to reforming and aligning the two taxes, for that is essentially what NIC is.  With the number of different payments and deductions, unification of tax and NIC would significantly reduce the administrative burden on businesses of all sizes. Full alignment, once achieved, would go a long way to bringing about the end of IR35.

4. Dividend taxation

The introduction of dividend taxation in the 2015 Summer Budget came as a shock but just as we had grown used to the idea, Philip Hammond took another swipe at family companies by reducing the tax-free dividend allowance by more than half in his announcement during Budget 2017.

The government seem to believe that small business is the scourge of the tax system, which must stop -- given their importance to the UK economy. This attitude is exemplified by what the chancellor said in his latest Autumn Statement:

“And tax receipts have been lower than expected this year, causing the OBR to revise down projected revenues in the future. Added to this is a structural effect of rapidly rising incorporation and self-employment, which further erodes revenues.”

“The tax system needs to keep pace. For example, the OBR has today highlighted the growing cost to the Exchequer of incorporation. So, the government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change.”

Revoking the decision to reduce the tax-free dividend allowance to £2,000 would help to restore some faith that government recognises the contribution that micro-business make to our economy and that it is serious in supporting them.

5. IR35

Rumours that the loathed public sector off-payroll rules could be extended to the private sector need to be headed off as soon as possible. While HMRC have said they have no plans to extend the off-payroll rules, few would actually take the Revenue at their word.

Such an extension would prove unpopular with contractors and end-clients alike, and any attempt to impose such rules may well see further exodus of contractors, thereby putting strains on businesses who rely on independent professionals to deliver valuable services. The government appointed after the general election therefore needs to give a firm commitment not to roll out the off-payroll rules across the board.