The sense of relief felt by the contracting sector has been palpable, following the news in last week’s Pre-Budget Report (PBR) that both the umbrella company expenses and income shifting issues have been deferred.
However, according to specialist contractor accountant JSA Group, this may only be a temporary respite and the Treasury is merely biding its time before unleashing a new tranche of tax legislation aimed at contractors.
“As long as there are service providers, agencies and contractors who are prepared to bend the tax rules whenever an opportunity presents itself,” explains Rick Flood, sales and marketing director of JSA, “the Treasury will tend to resort to ‘catch-all’ legislation rather than try to weed out individual offenders.”
‘Burying bad news’
The government has become notorious for its manipulation of the media and the timing of ‘bad news’ announcements, although this year’s PBR contained the good news about expenses and income shifting in the small print.
But the chancellor was not feeling generous enough to further delay the removal of the VAT Staff Hire Concession, which could have a serious impact on contractors working in the medical, financial and not-for-profit sectors.
“We are deeply disappointed that the Chancellor has not moved on the decision to remove the VAT Staff Hire Concession from 1st April 2009,” says Kevin Green, chief executive of the Recruitment and Employment Confederation. “This one single measure could help retain 150,000 temporary jobs.”
Contractor abuses lead to ‘protracted legal cases’
Flood staunchly defends the role of accountants to protect their contractor clients from overpaying tax, but admits that over-zealous service providers have led to action by HMRC then resulting in court cases.
“There have been a number of abuses over the years within the contracting industry which have led to expensive and protracted legal cases, followed by some very unwelcome and time consuming legislation,” continues Flood. “It is vitally important that contractors work under the appropriate tax regime, and that their agencies encourage them to seek professional advice.”
The wider impact of the Treasury’s attempts to clamp down on contractor expenses abuses has brought huge costs for the sector and affected businesses well beyond the target group.
Both the income shifting proposals and umbrella expenses promised to be the next classic examples of the Treasury’s ‘sledge-hammer to crack a nut’ philosophy, and may yet come back to haunt contractors.
There have been a number of abuses over the years within the contracting industry which have led to expensive and protracted legal cases
Rick Flood, JSA Group
Misunderstanding
For the first time the government may be starting to recognise that the temporary labour market is not the homogeneous group they assume it to be, and ranges from low paid, low skill temporary agency workers to highly paid contracting professionals.
The proof of this understanding, or lack of it, will come in the form of the legislation proposed by government to implement the Agency Workers Directive, which is most likely due in 2009.
And contractors are by no means a minority group of workers, as highlighted by recent research published by the Professional Contractors Group, which shows there to be an estimated 1.4 million contractors and freelancers currently working in the UK.
Government to return to contractors’ expenses
Whilst the news for contractors has been good so far, the government has made it clear that the contracting sector has one more chance to clean up its own act before action is taken.
Flood concludes: “As far as the Treasury is concerned, its attitude to contractors may be shifting, but it will not hesitate to act if there is any substantial abuse in the future. It is worth noting the words of the Budget statement on expenses. If compliance does not improve, the Government may return to this at a later date.”
Published on Monday, December 01, 2008
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