In his debut Autumn statement, Phillip Hammond announced a questionable set of upcoming plans that will undoubtedly affect your career as a contractor. After hearing the statement, it’s clear that some people in the industry now face an uncertain future; and the lifestyles of contractors could change in a big way next year.
It isn’t just one alteration either. IR35, VAT and disguised earnings are all aspects being taken into consideration as we enter the New Year. The changes regarding IR35 haven’t exactly rocked the boat amongst the contracting universe. It’s been a touchy subject for quite some time now, so the plan to shift it hasn’t come as much of a surprise to a lot of us.
Although, the public sector IR35 reform to remove the 5% tax-free allowance is also the biggest change discussed in yesterday’s statement. Nevertheless, the Independent Professionals Association – more commonly known as IPSE - are seeking out legal advice about whether it can challenge taxing contractors as staff without granting employment rights. They are claiming that the terms of the new legislation are completely unfair, and are demanding for modifications to the conclusion of the reform.
One can hardly blame them either; as contractors have never been eligible to benefit from any employer benefits of employee rights. It’s a competitive industry for a contractor as it is, without having the added pressure of losing more tax and career security.
IPSE retorted back to the statement made by the chancellor, urging contractors to come together and debate against the new proposal. They said: “If you work or plan to work in the public sector, let us know the action you’ll be taking. We’ll continue to gather evidence and push for the government to change its mind.”
But what does this all actually mean?
The reform, which was originally announced in the Budget earlier this year, will make public sector organisations determine the IR35 status of engagements. Then, if they’re deemed to be within the general rules of IR35, the government will apply taxes as they would do for permanent employees. The problem is that clients and agencies will take a holistic approach to IR35. They will say either that the new rules apply to all engagements, or none of them. Therefore, this will most likely not end well for the public sector and it also doesn't bode well for contractors in the private sector.
For contractors who direct and own their own limited companies, the plot thickens further; as the tax payer must interpret if their businesses are caught by it. They are also responsible for the clarification that they can expect of the payer, if they want to accept work from them in the first place.
Limited companies affected by the statement are now asking; what happens if they disagree with the IR35 opinion? Can they can submit an alternative opinion? And how do they appeal and reclaim overpaid tax?
For now, those who own limited companies, or contractors who work for a limited company should obtain an up-to-date IR35 opinion to enable them to consider what their options are after April 2017.
This raises the question of whether a public sector organisation will pay all of its contractors as employees in order to avoid any penalties. In this situation, contractors would be taxed as employees but would not be entitled to employment rights, such as paid holidays and pension – which would basically be the worst of both worlds.
The one positive point to note is that the government is not yet extending these ‘off-payroll working rules’ to contractors who work in the private sector - but who knows whether that is yet to come?
Reflecting on today’s Autumn Statement, there were, fortunately, a couple of pieces of good news for micro-businesses. Increased finance is being made available for exporting, additional funds are being made available to borrow through the Small Business Bank, and Corporation Tax remains on track to fall to 17% by 2020. So, should we be looking on the bright side or panicking about the imminent future?
When it comes to its latest set of announcements for contractors, we cannot help but wonder if this Autumn Statement shows that the current government simply has something against the way contractors work.
*Information/Statistics courtesy of Contractor UK*
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