I am extremely frustrated that no one seems to be aware what HMRC are doing to hard working flexible workers. In some cases the recent tax legislation has left contractors up to 30 per cent worse off.
There are thousands of temporary contractors in the UK. These range in all sectors and layers of business from cleaners, warehouse workers, drivers, nurses, supply teachers to IT contractors, doctors, air-line pilots. These individuals are the life blood of the flexible workforce, they fill the peaks and troughs of demand. For years, flexible workers received a number of tax breaks in some way to compensate them for the lack of employment status. It also helped with the lack of knowing where the next job maybe, the need to travel long distances and so forth.
In recent years HMRC have introduced truly aggressive tax legislation which has more or less eliminated flexible worker tax relief arrangements. Last year there was the elimination of travel and subsistence tax relief for contractors and in April 2017, contractors will lose the ability to claim the flat rate VAT tax surplus.
The worst and most aggressive impact will be HMRC new legislation from April 2017 which affects ALL contractors working in the Public Sector. Typically known as IR35 legislation, this is where contractors operate their one man contracting business by way of a Personal Service Company. This allows them to get tax breaks in the form of dividends.
HMRC not even ready
Worse still, the new digital tool HMRC have developed to be used to decide if a contractor can maintain his tax relief gaining status, isn’t even ready yet. This means thousands of contractors are currently in limbo, as to what is going to happen to their incomes come April.
What do I believe the impact of this will be?
- Contractors will be circa 15 per cent - 30 per cent worse off;
- Costs in the Public Sector will have to rise to compensate the workers;
- NHS caps will mean that workers will refuse to work there and will move to the Public Sector;
- Mass migration out of the public sector into the private sector;
- Workers will be paying tax as if employees, but won’t get employment rights which is likely to result in employment tribunal cases;
- Public sector making decisions about tax and employment status when they are unqualified to do so.
HMRC not listening
HMRC have consulted with people like myself, trade organisations, such as REC and APSCO etc but totally ignore our feedback. They ignored it regarding last year’s legislation and they are ignoring it again now.
Whilst I agree that HMRC should crack down on tax evasion, this is just lazy and a response to the fact that HMRC have failed to regulate. For example, since 1999 HMRC have only managed less than 30 IR35 contractor tax evasion cases and lost half of them. HMRC appear tunnel-visioned on their belief that contractors are tax evaders, when actually in the majority they deserve a tax break as they fill the temporary roles that are so badly needed.
The media is full of headlines about employment rights and so on, yet this massive stealth tax goes unreported. We passionately need the UK public to know what the impact on the UK economy if the government continue to focus HMRC in this way.
Indeed, following on from the Public Sector legislation this April, it is probable that the legislation will expand to the Private Sector too, affecting every contractor and business in the land. It is time to wake up and do something about it.