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National Insurance and IR35 – what does the future hold for contractors and taxation?

National Insurance and IR35 – what does the future hold for contractors and taxation?

June 23rd, 2017

All eyes were on the Queen’s Speech this week to see what Her Majesty would – or, perhaps more significantly, wouldn’t – announce on behalf of her Government.

If it hadn’t been for the Election debacle, it’s possible that the Prime Minister Theresa May would have included measures directly affecting contractors, independent professionals and self-employed people.

Perhaps thankfully, due to the lack of a Tory majority there was very little substance to the speech, other than legislation about Brexit.

While National Insurance was mentioned, it did not relate to the announcement made in the spring Budget (which was so quickly backtracked on) that NICs would increase for self-employed people.

So, following the Election and the Queen’s Speech, are contractors ‘safe’ from taxation changes?

Contractors and National Insurance Contributions

The answer is uncertain. It is clear that the Government had, and probably still has, National Insurance in its sights. While the Budget’s NICs announcement was dropped, it clearly highlighted a flaw in the modern tax system which is only capable of identifying taxpayers as employers or employees – contractors are neither of these.

At the time, the Chancellor Philip Hammond said the argument for raising Class 4 NICs was to level the playing field, as “historically, the differences in NICs between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits. But with the introduction of the new state pension, these differences have been very substantially reduced”.

Contractors and IR35

From April, changes were made to the way IR35 is applied to contractors working in the public sector. Where IR35 applies, the contractors are being taxed in the same way as employees.

In effect this is another measure to bring contractors and freelancers in line with employees, with no consideration for the fact that employees enjoy benefits (sick pay, holiday pay, health insurance and so on) which the self-employed have to fund themselves.

The future for contractors and the self-employed

IPSE (The Association of Independent Professionals and the Self Employed) has published its view on modern employment and calls for definitions of employment status to be determined.

Any day now the Taylor Review of Modern Employment Practices will be released, looking at how employment practices need to change in order to keep pace with modern business models.

So are the nation’s five million self-employed – a number that has doubled over the past 20 years – a privileged group enjoying tax advantages at the expense of those on PAYE? Or are they people trying to earn an honest bob, and who are prepared to forego the security of being on the books? Probably neither, possibly something in between.

What seems clear is that when it comes to taxes for contractors, at some stage, sooner or later, something will change.

Media Contact: Sarah Middleton, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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