The Autumn Budget 2017 was a mixed one for contractors. On the one hand, it seemed that the expansion of IR35 to the private sector has come nearer, whilst on the other, there were no tax hikes. In addition, there is some optimism that the government, with its announcement of a series of discussion and consultation documents, may be more flexible than before.
The biggest news for contractors was the government’s belief that the changes to IR35 in the public sector are working. As a result, there will be consultation on extending the IR35 rules into the private sector.
Better news for contractors was the announcement that the VAT registration threshold will remain the same at £85,000 for the next two years. The Office of Tax Simplification has called for the threshold to be reduced. However, the IPSE has argued that a reduction would cause many contractors serious cash flow problems.
As a result of the Taylor Review of Modern Working Practices, the government has decided to improve the clarity of employment status tax and tests. This could result in an increase in self-employment taxes, employment rights for any contractors who are taxed as employees, IR35 being rendered obsolete by an alignment of employment status law and tax law, and a new “dependent contractor” status being introduced.
In the NHS, the impact of the rules has been apparent, with projects being delayed or cancelled and the subsequent deterioration of its services. If the rules are rolled out to the private sector, the government risks hampering flexible working in the UK and causing damage to the UK economy. The government sticks to the belief that the introduction of the rules into the public sector has increased compliance.
Traditionally, it was the contractor who decided on their employment status and deducted the appropriate tax. However, following the introduction of the new rules, it became the responsibility of the end client to carry out IR35 assessments for each of their contractors. If the contractor comes via a recruitment agency, then the recruitment agency must deduct tax using PAYE.
Tax avoidance initiatives now appear to be moving the focus away from contractors to large corporations. Public investment in the UK’s housing market could lead to greater opportunities for construction contractors.