Contractors Escape Chancellor’s Budget – However, Armageddon Looms

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Contractors Escape Chancellor's Budget
Contractors Escape Chancellor's Budget

Contractors Escape Chancellor’s Budget

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It looks like contractors escape Chancellor’s Budget wrath this year.

However, this is only a delay of execution for them.

There were leaks in authoritative newspapers that the Chancellor was considering doing two things.

  1. He would roll out the recent public sector IR35 changes to the private sector too
  2. He would cut the threshold at which they charge VAT from £85,000 a year to just £26,000 a year.

It states that this would be in line with a lot of EU countries currently.

That’s a strange argument to use when you are planning to leave the EU.

Budget Leaks About Contractors

When the Treasury, or Chancellor, leaks budget details to the press it is usually to test reaction.

They are flying a kite.

If there is too big a reaction it gives them a chance to quietly withdraw it.

They would rather withdraw it at this stage than after they include it in the Budget as happened with proposed National Insurance changes earlier this year.

It was pointed out that their manifesto said that they wouldn’t do this.

With a backbench revolt looming they quickly withdrew it losing face in the process.

So, it’s better to leak something to the press to see what the reaction is like first.

VAT Threshold Cut for Contractors

With the VAT threshold changes they have decided to hold that VAT threshold for the next two years.

However, they are going to consult on it.

Presumably they are waiting till they leave the EU before they change the UK VAT Threshold to the EU norm.

However, with this change not to happen for at least two years freelancers can relax a bit.

It’s the first one, though, that will have the most effect on UK freelancers. Here’s what is says in the documentation accompanying the Budget.

Off-payroll working in the private sector:-

“The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017.

“Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.

“It is right that the government take account of the needs of businesses and individuals who would implement any change.

“Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”

IR35 Contractor Research Report

It seems that that this external research is going to be published early next year.

So, presumably, the Government can implement the IR35 changes in the private sector too in April 2018.

Although one would think that April 2019 would be more likely.

It would depend on how soon the Government wants the tax money from contractors.

Public Sector Compliance Increasing

So did contractors escape Chancellor’s Budget wrath?

The clue in whether the Government are likely to do this or not lies in their statement that “Early indications are that public sector compliance is increasing as a result.”

This goes against evidence from other sources who say it has been a complete shambles.

However, if the Government and HMRC believe it is working nicely then that’s all that matters.

Extending IR35 Reforms to Private Sector

The Chancellor states that “a possible next step would be to extend the reforms to the private sector”.

That statement gives contractors and their representatives some hope as this just says that it is a ‘possible’ next step.

However, their next statement gives the game away.

Contractors Who Effectively Work as Employees

They say that this would be “to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.”

There you have it.

The Government obviously believes that contractors who work this way are tax avoiders.

Indeed, this proposal comes in the section labelled Tax Avoidance Meaures.

So, I think we can see what the Government’s thinking is here and their attitude to freelancers.

I don’t believe that contractors escape Chancellor’s Budget wrath so easily.

IR35 Changes Working Well in Public Sector

If the Government believe that this is working nicely in the public sector they are not likely to scrap it there.

So, if it applies in the public sector why would they tax contractors in the public sector more fiercely than contractors in the private sector.

That would not make any sense.

So, the evidence would seem to suggest that they will implement this in the private sector too.

It would appear that it is just whether they implement this on April 2018 or April 2019.

They will get their external reports in early 2018 so they may well go for the earlier date.

So, for contractors the stay of execution is likely to be for either 5 months or 17 months.

Copyright R. McGeddon

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