The Daily Telegraph - Saturday - Money
Contractors fear a new tax blow
Complex new rules that have increased many contractors’ tax bills have been thrust into the spotlight again by the Government’s response to a review of the “gig economy”. Many contractors argue that penal taxation of “off-payroll workers” has caused their incomes to crumble and forced many to abandon the sector. They argue that the rules are unfair, as they force contractors to be taxed as employees without granting them crucial rights such as holiday and sick pay.
The Government’s “Good Work” plan, released last week in response to Matthew Taylor’s review of the gig economy, acknowledged this disparity and hinted that new legislation could be introduced to address it.
But the Government doesn’t appear to be retreating from its bid to extend the rules to private companies. This was announced in November’s Budget and a consultation is expected later this year.
Until new rules took effect in April last year, contractors in the public sector determined for themselves whether, under rules known as “IR35”, they should be regarded as selfemployed or taxed as employees. oyees. The decision could make a huge e difference to tax bills: someone earning g £50,000 a year would pay £13,000 in n taxes if taxed as an employee or as little ittle as £2,000 if self-employed.
The reforms shifted the responsibility to the employer. yer. Campaigners say some have e been overzealous in classifying their heir workforce as taxable as employees, ployees, costing some contractors thousands housands of pounds.
As they are running businesses, these workers don’t receive holiday pay and face the additional costs of operating a limited company.
Contractors fear that an extension of the rules could cause an “exodus” of experienced staff at private companies. According to Contractor Calculator, an advice service e for the self-employed, this has happened in the public sector, tor, with as many as a quarter of f NHS contractors, including locum doctors and nurses, abandoning the health service. ice.
HMRC said the rules were e simply intended to prevent companies and workers abusing the system to reduce tax liability and anyone who felt they had been wrongly categorised could challenge the decision. But many contractors feel otherwise. Dave Chaplin, of Contractor Contracto Calculator, said: “It’s good that they are moving to help workers w with precarious rights [via the Good Work plan], but it shouldn’t be at the expense of those who are self-employed self-empl and running their own businesses.” busi Seb Ma Maley of Qdos Contractor, a self-employment self-empl forum, said the rules cou could be extended to the private sector as soon as April next year. “Understandably, Underst contractors will fear being w wrongly placed inside IR35 by th their private sector engagers and made to pay the same tax as employees, but without any of the benefits,” he said. “It’s essential e that private sector engagers e are ready to make well-informed decisions on a case-by-case basis – to protect contractors and the company’s own tax liability.” HMRC denied that the public p sector had experienced an e exodus of contractors after the re reforms, saying it was common for st staff turnover to be high among amon this group. Dr S Sarwat Shah, 44, is a locum der dermatologist and chair of the Locum Doctors Union. She said she went through eight separate IR35 assessments, including using HMRC’s online tool, which all categorised her as falling outside the rules.
However, Dr Shah, from Reigate in Surrey, was deemed by the NHS to be an employee of the health service, costing her thousands in tax. She said: “I know lots of people [in the health service] who have given it up altogether. Some of them have emigrated to the US, Australia or India.
“The only word I can use is suffocation. I’m not allowed to use a limited company; that’s fine. But I am self-employed. I earn probably 50pc less than I did before.
“Construction or IT workers can walk away if they need to. Where can health workers go?”
She added: “The day HMRC rolls this out in the private sector, companies are going to behave in the same way as the public sector. They will lose experienced staff.”
A spokesman for HMRC said if a taxpayer felt they had been wrongly categorised they should complain to their employer.
He added: “If they cannot agree, the contractor has the option of making a claim for overpaid tax through their self-assessment tax return. If HMRC disagrees with the claim, the contractor can test the matter before the tax tribunal.”
Another contractor, Joanna Whittington, said she had had to take six months out of work to retrain in order to comply with the rules.
Rules that increased bills in the public sector are likely to be extended. Sam Meadows reports