Contractors Conservative Doomsday
UK Contractors Conservative doomsday approaches with the Matthew Taylor Report on Self Employment due out shortly.
Theresa May commissioned the report on contractors and self employment.
Expect it to make the definition of self employment far stricter.
Indeed, we had a foretaste of what Matthew Taylor believes about contractors.
Raising National Insurance for Contractors
It was his idea for the Chancellor to raise National Insurance for contractors in the last budget.
That had to take this out because the Conservative Manifesto said that there would be no National Insurance increases.
However, there was nothing in the current manifesto about it so you can expect them to re-instate this in the Autumn Budget.
Matthew Taylor’s Six Point Plan
Matthew Taylor, in a speech recently, said that he would set out a six point plan. It’s to ensure that Government policies adapt to the modern way of working.
Those in self employment now number 4.8 million.
Indeed they are now 15% of the workforce.
However, 45% of new jobs created since the credit crunch have been freelance or self employment jobs.
In America, 50% of all workers are in self employment.
It looks like Britain is heading in that direction too.
Contractors Tax Status
So, Theresa May and Philip Hammond want to get their tax status and modus operandi worked out before it gets to that stage.
After all, they wouldn’t want 50% of the country’s workers operating through personal service companies.
We had a clue earlier this year when both Theresa May and Chancellor Hammond said that “It was unfair that a person in self employment earning £100,000 a year pays less tax and National Insurance than an employee earning £100,000 a year.
Of course that is not comparing like with like as the permanent employee has all sorts of other benefits such as holidays, sick pay, pensions etc.
They also have more job security and may even have other benefits like share options.
No Political Party for Freelancers
One big problem that freelancers have is that there is the party of big business and the party of the workers. There is no party for the self employed.
The other problem they have is that those legislating on contractors are all permanent employees themselves. That’s why neither of the main parties has much sympathy for them.
Why should freelancers get to lay things off against tax that they can’t?
Making the Tax System Fairer
Matthew Taylor, in his speech, said that he wanted to make the tax system fairer while encouraging entrepreneurship and flexibility.
You can bet your bottom dollar that what he, May and Hammond see as making the tax system fairer is to have contractors paying the same amount of tax as employees.
This is the Contractors Conservative Doomsday scenario playing out. It will affect contractors Accountants too.
Of the six measures that he is recommending get put in place these are the two that are most interesting to contractors.
1. Making the tax system fairer to ensure “sound public finances”.
2. Creating clear legal divisions between employees, the self employed and so called ‘workers’, which currently fall between the two categories.
Contractors to Pay More Tax
It seems fairly clear, from the first one, that he intends to make recommendations that contractors should pay more tax. That is what he, May and Hammond would see as fair.
Also, ensuring ‘sound public finances’ could only happen by increasing the taxes that contractors pay.
The second one is harder to work out. Who are these ‘workers’ in the middle?
Are they current freelancers?
Are they the normal contractors who go onto say an IT project doing a similar job to the employees on that project?
Stricter Definition of Self Employment
We know from press reports that he is going to recommend a far stricter definition of self employment.
So, one would expect that perhaps 90% of current contractors might be classified as those ‘workers’ in the middle.
It is likely to go the American route where there are two classes of contractors.
There are what they see as genuine contractors who operate in a very different way than permanent employees.
Then there are the others who are basically employed by their agency who extract pretty much the same tax as if they worked for their client company.
One would say it is likely that the vast majority of current contractors will now be in the second category.
Matthew Taylor Report Out Shortly
The report is due out in June and a few days ago Matthew Taylor said it would be out in a few weeks.
Expect it to recommend major changes in the way contractors operate.
Expect it to recommend that most contractors should have to pay far more tax than they do now if they operate through a limited company.
We could be seeing the death of contracting in the UK as we know it.
The Contractors Conservative doomsday is just weeks away.
We shall know everything fairly shortly.
Watch this space!
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