Red tape is hampering freelancers' success

Over the last decade it is clear that the Tories have simply been paying lip service to claiming they support the UK’s flexible workforce.

The reality is that freelancers have been faced with more and more legislation that is set on penalising them for their hard work.

Whilst in the last Budget Cameron pledged to eliminate Class 2 NICs and gave a £1000 tax break to those who sell or rent online other measures introduced have seen an increase in costs and have restricted means of engagement for contractors.  

The 2016 Budget brought with it a real threat to future IR35 reforms which will only serve to do more harm to a freelance workforce that has been propping up the UK economy through the 2007 recession and beyond.  

The UK’s decision to leave the EU has also brought with it a lot of uncertainty and whereas freelancers could play a key role in keeping the UK economy going through these uncertain times they are being hampered, particularly in the public sector.

From April 2017 the Government is poised to reform IR35 for public sector engagements believing that HMRC is losing out on £400m in tax annually from 20,000 contractors who work in the public sector. 

From April 2017 a worker’s IR35 tax status will move from the worker’s own company to the public sector body or agency / third party paying the company, who will be liable for collecting taxes using RTI.  Some experts think that it is only a matter of time before the same legislation is introduced in the private sector.

However, the plan is flawed and we will see Government services decimated as 80% of contractors will abandon the sector rather than accepting a contract outside IR35 and lose about 20% of their income.

The Government will also lose out on £115m in taxes and could face an increase of £610m rise in costs per year for hiring the same workers on the payroll.

These were just three findings of a recent survey conducted amongst 500 contractors. The plan is ill-thought through, unworkable and unachievable.

And let’s not forget the dividend tax hikes that cost limited company contractors significant amounts of extra tax.  A 7.5% increase in each tax band is pretty steep and is set to cost contractors about £1,700 more in tax each year.

However the Government justifies such a move as a legitimate way of clamping down on ‘tax motivated corporation’ and ‘levelling the playing field’ between employees and freelancers and contractors.  Contractors who operate through umbrellas have also felt the ire of Government policy in equal measure as limited company contractors.  

Since the Agency legislation came into force two years ago contractors who provide their services to a client via a recruitment agency and are deemed to be under ‘supervision, direction or control’ are now forced onto the payroll and pay tax as employees but enjoy few benefits and statutory rights.

And in April this year the Government withdrew travel and subsistence expenses tax relief from the majority of umbrella contractors.

No matter how often HMRC and the Government decide to review legislation around contractors and freelancers what is certain is that this group of workers are amongst the worst to be hit. 

I would urge Theresa May to take a long hard look at the next measures she is planning on introducing in her efforts to shore up the UK’s tax system and give some careful consideration to the freelance and contracting community so that they can thrive and help the UK economy to thrive too.

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