Contractors have long expressed the opinion that the government does not understand the unique pressures that they face and in fact that they feel a certain degree of victimisation. This opinion was certainly was not helped amid speculation of how the March 2016 budget would affect contractors after leaks suggested that abuses of contractor status was to be targeted.
We now take a closer look at the actual impact of this budget on contractors.
Travel and Subsistence. We have already covered in depth the effect of removing this allowance, which came into effect from April 2016, (However if you would like more details on what expenses are still allowed please see our blog dated 19 May 2016). The reasoning behind this decision according to the government was that permanent workers do not have allowances for travelling to and from work and therefore neither should temporary workers. The reality that temporary workers do not know where they are working from one month to the next and therefore sometimes take contracts of more than a reasonable distance from home did not seem to be taken into account. The outcome of this decision is definitely one of a negative impact on contractors who in some cases might decline contracts due to travel hence not only affecting the contractor community, but also businesses in need of specific talents.
New Dividend Tax Rate. Many contractors have in the past operated through a company and remunerate by taking dividends as opposed to other forms of renumeration, the new rate means that from 6th April 2016 individuals have an allowance of £5,00 per year, but then suffer higher rates on dividends that don’t fall within this allowance. This is overcomplicated and is expected that the majority of contractors who function this way will be significantly worse off.
Pay-as-you go. A voluntary pay-as-you-go facility for self-employed people to pay their tax from 2018 will be introduced. With the variability in contracts and pay for self-employed persons as opposed to permanent salaried employees this indeed might prove a useful option.
Contractor status. From April 2017 contractors operating through their own limited company that are hired by a public sector body will find themselves subject to classification by that company. ISPE has spoken out about this proposal citing it as ‘short sighted’. It is their belief that this will lead to confusion and that freelancers that are labelled as employees should then expect the same benefits such as holiday pay and sick leave which will actually lead to additional burden on taxpayers. There is also the concern that this will discourage the hiring of contractors in the public sector.
It would appear that the government is not going to sway contractors opinion in their favour anytime soon. However if you are concerned about how these or any of the other changes brought up in the budget effect you please do not hesitate to contact us and one of our dedicated contracting staff will be happy to go through your structure in depth and offer advice.