Budget 2014: a freelancer's checklist
George Osborne’s 2013 Autumn Statement may still be fresh in freelancers’ minds, but on Wednesday it’ll be time for him to announce a fresh round of measures at Budget 2014, writes Derek Kelly, managing director of two service providers to temporary professionals Parasol and ClearSky.
So how will members of the UK’s freelancing community be affected by the chancellor’s announcements in the House of Commons on March 19? The following checklist outlines just some of the potential measures that freelancers, contractors and the self-employed should look out for.
National Insurance: living on borrowed time?
Conservative MP Ben Gummer has suggested that National Insurance (NI) should be renamed an 'earnings tax' and eventually merged with income tax. A merger has, of course, been talked about for several years, and such a change would obviously have significant implications for the tax affairs of freelance contractors. The chancellor is reportedly attracted to the idea of renaming NI, so don’t be surprised if it gets a mention on March 19, with Mr Osborne positioning an NI-income tax merger as an idea to be explored and possibly worked towards in the coming years.
IR35: due to be tightened further?
Merging NI and income tax would, according to the Office of Tax Simplification (OTS), make IR35 redundant. In the meantime, however, the 14-year-old piece of legislation survives and continues to evolve. ThePersonal Service Companies Committee could publish its recommendations alongside the Budget, paving the way for further reform and tightening of IR35. Limited company users must hope that any proposed reforms are sensible, proportionate and practical.
False self-employment: reassurance for genuine freelancers?
PCG, the freelancers’ trade body, has urged the chancellor to use Budget 2014 to delay complex legislation designed to tackle ‘false self-employment.’ Due to come into force from April, the draft measures have caused anxiety among professional freelancers, staffing firms and the wider contractor supply chain.
In a bid to allay these concerns, HM Revenue & Customs has suggested that the onshore employment intermediaries legislation will not cover personal service companies, or indeed independent workers who operate through professional employment organisations or umbrella companies.
However, we would like this to be stated unambiguously in the legislation and the accompanying guidance, which is due to be published imminently. Indeed, along with our fellow Freelancer and Contractor Services Association members, we have been lobbying government on this point. While we feel it is unlikely that the legislation will be delayed, the chancellor could act to give recruitment agencies more time to comply.
Offshore employment intermediaries: message to be reinforced?
Meanwhile the Offshore Employment Intermediaries legislation, which seeks to close a tax loophole whereby the employment of UK-based workers is outsourced to offshore umbrella companies with a view to avoiding PAYE tax and National Insurance contributions (NICs), is also due to come into force when the new tax year starts in April.
The government announced at Budget 2013 that it would be taking action, and the draft legislation was published on December 10th 2013. The new legislation will have consequences for any contractor working through umbrella companies based offshore.
The chancellor may reiterate the measures during his Budget speech, or provide an update, as part of wider efforts to demonstrate that he is taking action to clamp down on offshore tax avoidance.
Contractor benefits and expenses: set for simplification?
Several of the recent OTS recommendations for simplifying the benefits and expenses of umbrella and limited company users could be included in the Budget. One OTS recommendation that could be adopted by the chancellor would see limited companies being granted the ability to process benefits for staff -- including directors -- via payroll, instead of needing to submit a P11D directly to HMRC. Any measure that makes it easier and simpler for micro-business owners to recoup legitimate expenses incurred as a direct result of an assignment, as well as benefits, should be welcomed.
40p tax threshold: will it rise?
The chancellor is coming under pressure from within his own party to use his Budget to raise the 40p tax threshold, with some Conservative MPs calling for the higher-rate trigger to be increased from £41,450 to £44,000. The calls come after new figures revealed that 800,000 people have moved into the higher-rate tax bandin the past three years. Should Mr Osborne take heed, the change would be welcomed not only by contractors who stand to gain personally, but everyone who believes the current rate acts as a brake on ambition and entrepreneurialism.
We hope that the contents of Mr Osborne’s red Budget box are received with applause by the country’s skilled, flexible and freelance workforce, rather than groans, as the chancellor has an opportunity to support them which, in turn, will boost the economy and the public finances.
The author, Derek Kelly, is managing director of the Optionis group.