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UK Government Blasted Over Freelancer Tax Policy

by Jason Gorringe,, London

09 August 2017

The United Kingdom Government's tax and regulatory policies towards freelancers are contributing to record low levels of confidence within the country's self-employed community, freelance and contractor groups have warned.

According to research by the Association of Independent Professionals and the Self-Employed (IPSE), confidence among the UK's two million freelancers "has plummeted to the lowest level on record," with just 19 percent expressing confidence in their businesses performance.

IPSE said freelancers attribute their concerns to Brexit and to government policy relating to taxation and regulatory constraints.

"The main factors behind this significant decline in business confidence seem to be Government policy on hiring freelancers, taxation of contract work and, of course, Brexit," IPSE's report said.

With regards to taxation, the report identifies recent changes to IR35 legislation as a major cause for concern, with many contractors having reportedly walked away from contracts as a result of the new tax measures.

The IR35 rules may apply if someone is working for an organization through an intermediary, typically a Personal Service Company. If IR35 applies, all payments to an intermediary are treated as if they were the worker's employment income, and the intermediary must pay any tax and National Insurance contributions (NICs) due.

Under changes introduced in April 2017 aimed at "off-payroll" workers in the public sector, where workers are engaged through their own limited company, responsibility to apply the IR35 rules fall to the public sector body, agency, or other third party paying the worker's company. The public sector, body, agency, or other third party is liable to pay any associated income tax and NICs.

Prior to the introduction of the changes, contractor associations warned that risk-averse and unprepared agencies would likely cease to engage limited company contractors directly, thereby avoiding the responsibility of evaluating a contractor's status and removing any resulting tax risk.

According to Qdos Contractor, which provides insurance services to the self-employed, there is evidence that this higher aversion to risk is now "widespread," largely as a result of negative perceptions about tax avoidance in the public sector.

"The default position for many will therefore be to avoid any possible attack or condemnation," it says.

Writing on Qdos's website, Benedict Smith observed that "things have changed for the worse" for the self-employed in the UK as a result of recent tax policy decision.

"From reform to public sector IR35, to the 60 percent slashing of tax-free dividend allowance, and – who could forget – new travel and subsistence restrictions, the Government has made itself particularly unpopular with freelancers and contractors," he said.

"It's also difficult to ignore [the Government's] recent and dramatic U-turn over the proposed increase to National Insurance Contributions," he added.

Smith suggests that the Government "has targeted freelancers and contractors" in recent years, although he suggests that it has an opportunity for a fresh start on self-employment tax issues in the wake of the recent election and the formation of a governing coalition between the Conservatives and the Democratic Unionist Party.

"It's obvious where the Government should start - IR35 and the tax system. 63 percent of freelancers and contractors surveyed by Qdos Contractor have urged the Government to first prioritize building a fairer tax system, and one that works for contractors, not against them," he said.

However, IPSE warns that any attempts to bring about further changes to freelancers' tax status "could prolong negative sentiment towards the government."

TAGS: Insurance | tax | business | public sector | insurance | United Kingdom | payroll | contractors | self-employment | legislation | services | Professionals

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