Published on Thursday, November 24, 2016 in category:
Contractors in the UK have, today, been left trying to figure what exactly they’ve done to irritate Phillip Hammond so. Contractors in the public sector probably feel like sitting down might be difficult for a few days.
The two major changes to the contractor sphere are the effective neutralization of the VAT Flat Rate Scheme (more information on this is available here), and the confirmation of IR35 reform in the public sector.
Although, the Treasury seem to be attempting to move from the term “IR35” to “off-payroll working rules” the facts are these:
· The responsibility, and therefore the risk, of deciding who is self-employed will rest with the paying organization (the agency or the client)
· For those within IR35 and in the public sector, the 5% expense allowance will be withdrawn.
The obvious concern is that agencies and clients will not take the risk of falling foul of the rules and will either deem all contractors inside IR35 or move them onto the payroll. Both scenarios would make an enormous difference to contractors’ net pay. The rules look to be locked down fairly tightly and there seems to be very little that can be done for contractors wishing to remain in the public sector.
From the point of view of the society as a whole, our view is that this will trigger a mass talent exodus to the private sector. Rates will be squeezed and further squeezed as the supply chain protects its margin and the public sector will be forced to accept substandard workers at less than motivating rates of pay bringing the public sector to it’s knees. In a race to the bottom, no-one wins, but this is exactly the race the Treasury seem intent on running.
And how, exactly, is it ensuring that everyone pays their “fair share of tax”, when there are different rules for contractors in the private and public sectors? Mr Hammond and his ilk could do well to remember that just because someone doesn’t pay PAYE, that doesn’t necessarily make them a tax-dodger – there are undeniablel risks associated with being a contractor, and the ability to arrange their tax affairs is the contractor’s pay off. The chancellor seems intent on ignoring the flexible workforce and the very real contribution you make to the economy of this country.
Other “highlights” of the statement include:
• Confirmation of the plan to reduce Corporation Tax to 17% by 2020
• Personal allowance increases to £11,500 in April 2017 Higher rate threshold rises to £45,000 in April 2017
• Employer’s and Employee’s NI realigned at £157 per week
• A cull of certain salary sacrifice arrangements, but not pensions, pensions advice, childcare, Cycle to Work or ultra-low emission cars.
• National Living Wage up to £7.50 per hour from April 2017
• Insurance Premium tax up to 12% in June 2017
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