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Election 2015: what the parties have planned for contractors

Contractors look set to benefit from only few direct measures promised in the main political parties’ manifesto and pre-election promises. In fact, some pledges, such as threatened ‘clampdowns’ on tax avoidance, may even damage contractor livelihoods as many taxpayers become collateral damage.

“Despite the incredible growth in contractor numbers since the last election, it is disappointing that there have been so few attempts to engage with the contracting sector,” believes ContractorCalculator CEO Dave Chaplin.

“Contractors look set to benefit directly from some of the promises made by the political parties should they eventually form part of a future government. But this has been a missed opportunity, particularly as unlike previous elections, no party has pledged to review contractor taxation, such as IR35.”

Tax policies that could affect contractors

Both the Conservatives and Liberal Democrats pledge to increase the personal allowance to £12,500; Labour prefers to introduce a new lower 10% starting rate of tax and UKIP would increase it to £13,000.

Contractors are unlikely to benefit, as the National Insurance Contributions (NICs) threshold has failed to keep pace with increases in the personal allowance. That is, unless the Lib Dems’ proposal to increase the NIC threshold to be in line with the personal allowance is implemented.

The Conservatives would also formalise the Office of Tax Simplification (OTS) as a permanent body, allow married couples to transfer £1,060 of their tax free allowance between spouses and raise the inheritance tax threshold to £1m. Less positively for contractors, the Tories would cut tax relief on pension contributions for contractors earning more than £150,000 a year.

In contrast, Labour and the Scottish National Party (SNP) would re-introduce the 50% top rate of tax for those earning over £150,000, although this is modest compared to the Green Party’s plans to increase the top rate to 60%, and it would abolish capital gains tax personal allowances.

Ominously, the Lib Dems are considering reforming capital gains tax, dividend tax relief and entrepreneur’s relief, and Plaid Cymru wants control over corporation tax in Wales.

Anti tax-avoidance measures could result in collateral damage

Every mainstream party has made tax avoidance an election issue, although the plans to tackle it vary:

  • The Conservatives will ‘crack down’ on aggressive tax avoidance
  • Labour will complete a review of HMRC’s culture and practices to increase the effectiveness of the tax system
  • The Lib Dems plan to introduce a general anti-avoidance rule designed to ban structures created purely for tax avoidance purposes
  • The Green Party will make the tax avoidance industry illegal
  • The SNP will introduce more tax avoidance legislation and bolster HMRC’s resources
  • Plaid Cymru wants to close the ‘tax gap’ with more HMRC staff and strengthened anti-avoidance legislation.

These measures are not radical and are unlikely to directly adversely impact on contractors beyond the measures already in place. What is of greatest concern is the commitment by the Tories and Labour not to increase VAT, income tax and NICs.

This is because the Institute of Fiscal Studies has shown that the main parties’ anti-avoidance plans don’t add up, so where will the additional tax revenues come from? IPSE’s Simon McVicker fears that contractors and the self-employed will be targeted via changes to expenses tax reliefs to make up the shortfall.

What support is being offered to small businesses?

Small businesses with business premises and that employ people could potentially do quite well out of the various manifesto pledges. Labour will freeze business rates and reward employers who pay employees a living wage.

In its small business manifesto, the Tories acknowledge the contribution made by the self-employed and pledge to address the “disadvantages faced by the self-employed”. A precursor to this document is Prime Minister David Cameron’s contribution to the Association of Independent Professionals and the Self-Employed (IPSE) Magazine

Other Conservative commitments that could benefit contractors include cutting red tape by £10bn, increasing the share of government procurement spend won by small firms and establishing a Small Business Conciliation Service to address issues such as late payment.

The Green Party has said that it will introduces changes to business tax allowances to encourage the growth of small to medium sized enterprises (SMEs), but plans to increase the corporation tax rate for larger companies back to 30%.

Measures that would indirectly benefit contractors

All parties have made commitments to multiple measures that will indirectly improve contractor prospects. These vary from a Conservative pledge to spend £100bn on infrastructure to The Labour Party’s pledge to build 200,000 new homes by 2020.

Most parties agree that the UK’s digital infrastructure is a priority, so investment in superfast internet access and mobile infrastructure features prominently. Delivering public services digitally is also a priority.

This combination of physical infrastructure, housing and digital infrastructure, alongside the commitment by some parties to open up procurement to smaller businesses, should be a positive message for contractors across multiple disciplines.

However, the outcome of the election remains in the balance. IPSE’s director of policy and external affairs Simon McVicker told ContractorCalculator that this is the hardest election to call that he has ever experienced.

Chaplin agrees, concluding: “Contractors are faced with more choices than in any previous General Election. The rise of the smaller parties delivers greater choice, but also introduces levels of uncertainty that are potentially harmful to UK plc.

“When choosing which way to vote on 7 May 2015, contractors face a tough call. Clearly, parties offering a pro-business environment are those that offer contractors the best outcome. But pre-election promises have a habit of being cancelled due to political expediency. Let’s hope that Friday delivers a result that benefits both contractors and the UK as a whole.”

Published: 06 May 2015

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