Contractor industry urges Tory leadership candidates to rescue sector

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Stood up woman holding white folded A4 letter and brown envelope

A group of ten contractor organisations have written an open letter to both Prime Ministerial hopefuls, seeking assurances that the winning candidate will soften the increasing burden of regulation on the freelance or independent contractor sector.

The letter, whose signatories include the Forum of Private Business (FPB) in addition to contractor-specific tax advisers, private sector industry bodies, lobby groups and publications, accuses the extant Conservative government of being “hell-bent on destroying [the] competitive edge” that the freelance sector lends to the UK economy and says that recent tax year& regulatory developments have left the independent contractor sector feeling “that this Conservative government are anti-contractors and are waging an HMRC-led ideological war against them”.

The letter specifically cites the 2019 Loan Charge, a controversial tax measure that disproportionately affects freelancers. The Off-Payroll regulations will shift responsibility for IR35 assessment from contractors to end-clients, as major regulatory obstacles which undermine the future viability of the sector, urging both candidates to commit to halting and reviewing the announced policies.

Given the Conservative Party’s historic self-characterisation as the party of small business, the letter will likely attract the attention of the Tory leadership candidates. They are seeking to reunite a party that has fractured almost to breaking point over how to implement the result of the referendum on leaving the European Union. They are also desperately seeking to score political points over one another.

Boris Johnson remains the favourite to win the leadership race due to his stance on Brexit. But any commitment by Jeremy Hunt to review contractor specialist policies is likely to be very well received by the Conservative membership and could then be mirrored by Johnson.

Johnson has indicated a disposition to be willing to slash taxes but his proposals so far have been muddled. He initially proposed to increase the higher rate tax band, but this was apparently dialled back today to a reduction in National Insurance. His announced tax band increase fell under criticism by government departments that it was incompatible with the devolution of the collection of income tax to Scotland and would actually have left Scottish taxpayers paying more National Insurance whilst remaining on the same rate of income tax.

A commitment to halt the Loan Charge and Off-Payroll would be a simpler and cheaper commitment that would be clearly targeted at independent contractors and small businesses.

The 2019 Loan Charge was introduced in April to close a long-standing tax loophole that was widely exploited, famously in the cases of Rangers FC and Jimmy Carr. However, unlike typical avoidance legislation, a quasi-retrospective provision of the tax gives HMRC reasons to charge income tax to previous scheme transactions. In effect, allowing HMRC to charge tax to up to twenty years’ prior earnings in one lump sum. Opponents argue that this represents a disproportionate response and is unconstitutional. It undermines taxpayer certainty, ruining the lives of thousands of people who are now facing tax implications running into the tens- or hundreds-of-thousands of pounds.

Nearly 200 MPs and peers have now signed an open letter to Treasury minister Jesse Norman calling for a six-month delay to the Loan Charge. This was in order for a judicial review to be held.

The Off-Payroll regulations aim to reduce non-compliance with IR35 by shifting responsibility for IR35 assessment to end-clients, meaning that hiring contractors will carry a significant administrative burden. Many opponents of the policy worry that this could signal the end of contracting altogether. Or, mean that contractors have to face PAYE employment taxes without any statutory employment protections, regardless of their IR35 status.

A recent Government consultation into the proposals was met with stiff criticism from tax and accountancy authorities as working solutions.

The open letter calls the Loan Charge “outrageous” and the Off-Payroll regulations “absurd” and “grossly unfair”.

The chief executive of the Freelancer & Contractor Services Association (FCSA), Julia Kermode, said: “The next Prime Minister must listen and work with the contracting sector rather than undermining it. The complexity, unfairness and administrative burdens that the off-payroll proposals will bring to supply chains will be damaging to the UK economy, damaging to the flexible labour market, damaging to the recruitment sector and damaging to the workers it will impact. ”

“At this time, it is absolutely critical that the UK remains an attractive place to do business, so bulldozing ahead with the off-payroll reforms would be very irresponsible to say the least. ”

Dave Chaplin, CEO of ContractorCalculator.co.uk and director of the Stop The Off-Payroll Tax campaign, said:

“The contracting and freelancing sector has had enough of this Government’s war on contracting, with the Off-Payroll Tax and the Loan Charge both being direct attacks on the UK’s flexible workforce. Contractors and freelancers are hugely important to many businesses, yet instead of supporting this important sector with working rules and following the Good Work Plan, the Government instead are undermining it and damaging the economy as a result.

“On behalf of hundreds of thousands of contractors and freelancers, we are calling for the next Prime Minister to stop this war on contracting and to instead sit down with the sector to discuss with us all how best to recognise and celebrate the UK’s flexible workforce.”

Steve Packham, co-founder of the Loan Charge Action Group (LCAG), commented: “Thousands of contractors and freelancers, and their families, are facing ruin as a direct result of the Government’s 2019 Loan Charge, which MPs and peers have said undermines the rule of law. This of course stems from the flawed IR35 legislation, which fails to recognise the reality of how contract workers/freelancers work and the amount of financial risk involved. There are certain advantages of working as a permanent employee which a contractor or independent service provider does not receive.

“The Loan Charge Action Group is delighted to work with leading organisations representing contractors and freelancers. The whole sector is clear that this Government must change course and stop attacking us, starting with dropping the draconian Loan Charge and the crippling Off-Payroll Tax.”

The open letter was published today on the website of signatory ContractorUK.com and can be found here.

25th June 2019.