Matthew Taylor Report on Self Employment
The Matthew Taylor Report on Self Employment is due out in June.
It will define the term self employment far more strictly.
It will look at the role of contractors in the modern age.
Pundits expect it to put many more contractors inside IR35 and therefore have to pay the IR35 tax.
It was commissioned by Prime Minister May and Chancellor Hammond.
Raising National Insurance for Contractors
We saw the first signs of it when Chancellor Hammond tried to raise national insurance levels for the self employed and contractors.
He had to abort this because the Tories promised in their manifesto not to increase levels of VAT.
This was an early measure from the Matthew Taylor Report on Self Employment.
Indeed, Matthew Taylor said that he was very disappointed that Chancellor Hammond aborted the national insurance increases.
His report will be two-way.
Definition of Self Employment
Not only will he make the definition of self employment more strict, he will argue for more benefits for contractors.
Those benefits are likely to include holiday pay, sick pay etc.
The Tories reckon that unscrupulous employers are making some jobs into self employed jobs so that they can save on tax, national insurance and not paying for workers benefits.
Of course, that may be true with low paid, zero hours workers in what is called the gig economy.
However, IT Contractors, and many other contractors, would rather they just left them alone to get on with their contracting careers.
Although the report’s premise is to look at self employment in he modern age, punidts expect it to be just another attack on contractors.
Extracting More Tax from Contractors
The predictions are that it is main purpose is just to extract more tax from contractors by putting more of them inside IR35.
Indeed, Chancellor Hammond and Prime Minister May have both stated that it is unfair that contractors pay less tax and national insurance than permanent workers on the same income.
However, as we all know, a permanent person on £100,000 a year is not comparable to a contractor on £100,000 a year.
You have to add all the benefits that the permanent employee gets to that amount.
Also, you have to take away the legitimate business expenses that a contractor has from that amount.
You are not comparing like with like.
However, Chancellor Hammond and Prime Minister May have bought in to this idea.
They say that this is an anomaly, it is unfair and they intend to fix it.
Too Many Contractors Incorporating Just to Save Tax
They say that too many contractors are incorporating just to save tax and national insurance and they intend to stop this.
The Matthew Taylor Report on Self Employment in the modern age will give them the ammunition to do this.
You can expect the report to come out in June and the proposals to be accepted and included in the Chancellor’s Autumn Statement.
Then you can expect to see them put into practice in April 2017.
New Definition of Self Employment
With the new definition of self employment, many more contractors are expected to fall inside IR35.
They will have to either pay the IR35 tax or join an umbrella company.
It is still slightly better, financially, for them to do the latter.
Public Sector Contractors
We saw the mad scramble by public sector contractors to dump their personal service companies prior to April this year.
Most of them went into umbrella companies.
This was after the Government changed the IR35 rules.
Instead of a contractor deciding their own IR35 status, employers in the public sector would now decide each individual contractor’s IR35 status.
The agency would then have to deduct tax and national insurance from a contractor.
Agencies didn’t Want Contractors on Payroll
However, many agencies told contractors that they didn’t want to run a payroll system for their contractors.
So, the contractors had to choose an umbrella company.
Also, there were consequences for any government department who got it wrong.
There was the possibility that the financial burden would fall on them.
Blanket Ban on Contractors Using Personal Service Companies
So many of them, like HMRC, the NHS and the MoD had a blanket ban on contractors using personal service companies.
Instead of making the contractors do the new online IR35 Employment status test, the departments simply made the contract jobs inside IR35.
This was to be on the safe side.
This has resulted in many contractors leaving those departments, jeopardising many IT projects and leaving them short of doctors, nurses and supply teachers.
However, many contractors have no choice but to accept this.
This will mean a 15% to 20% drop in their take home pay.
Making IR35 Changes in Private Sector
There are indications that the Government intend to roll these changes out in the private sector next year, perhaps announcing it in the Autumn Statement.
The recommendations to do so may form part of the Matthew Taylor report on Self Employment due out in June.
Of course, this will mean that the IR35 legislation will have to change.
The Government didn’t have to do that when they rolled it out in the private sector.
As they are hiring the contractors they can decide what type of contractors they want.
And, if they don’t want ones who operate through a personal service company they don’t have to take them.
Changes in IR35 Legislation
However, they would have to change the IR35 legislation to achieve this in the public sector.
There are some who think that rolling the IR35 changes out in the public sector is just a dry run, a pilot project for the private sector.
After all, the amount of tax money they expect it to bring in is only £185m.
That’s trifling beside the £2bn that Chancellor Hammond expected to bring in from his national insurance rise.
An MD of one agency said that he knows a contractor who is working at HMRC on a plan to roll these IR changes out in the private sector in 12 months time.
Contractors Await Matthew Taylor Report on Self Employment
So, contractors await the publishing of the Matthew Taylor Report on Self Employment with trepidation.
They know that the Government didn’t commission this report in order to make contractors pay less tax or to give them more benefits.
They know that Prime Minister May and Chancellor Hammond commissioned it to fix what they see as the anomaly of contractors paying less tax and NI than their permanent equivalents.
So, once again contractors await the next attack on their income by the Government.
Watch this space!
If you do need an umbrella company you could try one of the following:-
If you want to cut your Accountancy costs by using apps try Aardvark Accounting.
For Mortgages specially designed for contractors try Specialist Contractor Mortgages.