Budget 2018: How it affects contractors and the self-employed

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For the hundreds of thousands of contractors working in the UK’s private sector, the Budget 2018 brought unwelcome news that the public sector IR35 rules are being extended to them.

The move is not entirely unexpected since the private sector has been involved in consultations with the government for more than a year and the new IR35 rules will be introduced from April 2020.

That’s when medium and large employers will need to decide whether their contractor is ‘inside’ or ‘outside’ of IR35.

There is no indication yet as to what constitutes a large or medium-size business but small businesses will be unaffected.

However, the introduction will bring about a big change and there will be further consultations over how the new rules are implemented though contractors will need to prepare before the April 2020 deadline to ensure they fall outside of IR35 when the rules do come into effect.

Team up with experts who understand the IR35 situation

To that end, it will be a good idea to team up with experts who understand the IR35 situation and can help how a contractor operates to avoid falling foul of the regulations and to prepare their accounts properly – which means contacting the friendly team at Bright Ideas Accountancy.

It helps that contractors will need to appreciate that under the new regime, they will:

  • No longer determine their own IR35 status
  • And if the contractor is outside of IR35 currently then they will remain outside after April 2020.

For employers, this could mean an administrative headache because they will have to exercise ‘reasonable care’ when they come to decide on a contractor’s IR35 position.

The aim is not to alienate a workforce or to see big projects from being shelved – genuinely self-employed contractors will benefit from the rule change.

Indeed, fears that the move could be retrospective – as it was for public sector employees – to claw back unpaid tax are groundless, according to papers published after the Budget.

However, the move has been condemned by the Association of Independent Professionals and the Self-employed (IPSE) with its chief executive, Chris Bryce, saying: “The government will punish the majority of genuinely self-employed people and heap an administrative burden onto businesses.

“The move will undermine one of the country’s most productive and dynamic sectors.”

Firm that advises contractors and the self-employed

One firm that advises contractors and the self-employed is claiming that some of its clients could lose around 25% of their income.

A spokesman for the firm says that despite the move being delayed until April 2020 it will send ‘shockwaves through the self-employed community’ with many worrying about having to pay more tax on what they earn.

The announcement is the government’s biggest revenue-raising measure in the Budget this year with the Chancellor saying it will raise £2.9 bn by 2024.

Chancellor Phillip Hammond did have some good news for contractors and the self-employed when he announced:

  • Personal tax allowance being increased to £12,500 from April 19
  • The basic rate threshold (when people start paying tax at 40% or 32.5% on dividends) will rise to £37,500 from £34,500.

The IR35 situation can be confusing at the best of times and if you need to speak to contractor and self-employed accounting experts who understand the rules and who can help you comply, then you need to speak with the team at Bright Ideas Accountancy.

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