07th June 2024
Written by Qdos Contractor
On 4th July, the country will go to the polls to decide who will next lead the country.
Despite being just weeks away, the country’s major political parties have been suspiciously quiet on one important front: what they plan to deliver for the UK’s 4.2m self-employed workers.
This group could prove crucial come election day. But so far, it’s fair to say their needs have barely been
considered by politicians.
For us, it’s clear what needs to be done. Here, we explore just some of the policies that could win votes from the UK’s freelancers, contractors and independent workers.
Address known flaws of IR35
The arrival of the off-payroll rules made medium and large businesses responsible – and often liable – for IR35 status determinations. This perceived risk has seen many contractors forced onto their client’s payroll, irrespective of their true IR35 status.
In many cases, contractors are taking home up to 30% less after tax. When placed inside IR35, despite paying tax as an employee, they don’t receive employment rights – a state of affairs labelled ‘zero-rights employment’.
The good news is that the next government has the power to fix this issue – by granting rights to contractors in ‘zero-rights employment’.
But when it comes to IR35, there’s the opportunity to go further. Along with addressing CEST’s flaws and ensuring businesses take reasonable care in their IR35 determinations, a rigorous review and potential reversal of the off-payroll rules would be welcomed by all – the last point is something that Reform UK has included in its pre-election promises.
Raise the tax-free trading allowance
As the cost of living crisis deepened, the ‘side hustle’ boomed as people explored ways to boost their income.
However, the tax-free trading allowance threshold – currently just £1000 per year – doesn’t do nearly enough to encourage or reward this form of self-employment.
In our view, increasing the tax-free allowance would swing this pendulum, offering greater rewards and incentives.
Rethink and reduce the recently increased rate of Corporation Tax
Increased from 19 to 25% under the current government, Corporation Tax sees company profits subject to higher tax rates.
While there have been suggestions that the tax would be capped at its current rate for the duration of the next parliament, in our opinion, this doesn’t go far enough.
We would like to see the next government consider reversing, reducing or – at the very least – rethinking the increase to find a better balance.
Increase tax-free dividend allowance
Slashed by 90% in just seven years, the whittling away of the tax-free dividend allowance means company directors pay even more tax on dividends.
It’s part of the government’s targeting of limited company contractors, in particular, who were also hit hard by the introduction of the off-payroll rules.
The next government would be wise to roll back on these decreases in recognition that self-employment carries some inherent risks – and greater access to tax-free dividends should be part of the reward.
Regulate the umbrella industry
The umbrella industry is a vital part of the flexible working supply chain. Despite its importance, the sector has been all but ignored by the government in recent years – with non-compliant umbrella schemes commonplace.
Rather than tackling the operators of tax avoidance schemes, however, HMRC instead pursues those who have been lured into working via these unscrupulous operators – leaving contractors with considerable tax bills.
While the current government has promised to regulate the industry in an attempt to stamp out this non-compliance, nothing has been achieved yet. For the next government, this should be a quick win: regulate the sector to end non-compliance, protect workers and stamp out tax avoidance.
Ensure taxpayers are treated fairly
The pursuit of taxpayers for revenue lost to tax avoidance schemes is just one example of the unfairness of the tax system, though. The impact of HMRC’s approach to the Loan Charge has been well documented, but its activity where IR35 is concerned is also starting to raise eyebrows.
From Kaye Adams to Gary Lineker– and many more besides – HMRC has also hounded innocent freelancers for perceived non-compliance with the IR35 rules. The tax authority’s approach has been defined by aggressive litigation and protracted proceedings, with eye-watering sums at stake and little consideration for the freelancers involved.
Addressing this – and committing to stricter policing of HMRC’s treatment of taxpayers – is crucial.
A final thought…
Under the current government, tax and policy decisions have had a disproportionate impact on the self-employed. While damage has been done, there are clear solutions that can help to rebuild confidence within the sector, and among those businesses that engage flexible talent.
Generating a considerable amount of value for the economy, the self-employed will continue to play an important role beyond the election. Until then, it’s down to the UK’s political parties to put forward manifesto pledges that will serve the self-employed’s best interests – particularly for those parties with aspirations to lead the next government.
