As expected, Chancellor George Osborne has introduced several new measures that
1. RIP umbrella schemes: As of next April, payroll intermediaries will no longer be able to process tax-free payments for travel, subsistence or anything else currently used to reduce workers’ tax liability and the cost of employers national insurance. Some commentators predict employment agencies will up their charge-out rates by 10% – 20% to cover their costs.
2. One-man limited companies: Freelancers who sell their services through limited companies will be required to confirm the lack of supervision, direction and control before they are permitted to process tax-free payments for travel and subsistence. The measure clearly shows HMRC closing doors that opened with the introduction of OEI... limited companies are exempt from OEI, and many firms have encouraged self-employed operatives to form limited companies, defying a Targeted Anti-Avoidance Regulation designed to prevent this. From April, however, individuals will have to play by the same rules as big payroll intermediaries.
3. Higher national insurance payments for freelancers? Hidden in the small print of the Autumn Statement was a line referring to work done by the Office of Tax Simplification (OTS) on employment status. Hudson Contract investigated, and we have seen a letter from the Chief Secretary of the Treasury to the Head of the OTS accepting sixteen of their twenty-eight recommendations and committing to consideration of a further five. The most significant change involves scrapping the £2.70 a week Class 2 NICs paid by the self-employed, along with a review of Class 4 NICs, which relates to an individual’s year-end profits. We anticipate the Class 2 savings will be more than wiped out by an increase in Class 4 payments. In short, the OTS believes freelancers should pay the same as those who are employed – even though those who work for themselves cannot access the same benefits.
4. Increased resources for compliance: This one is simple and straightforward – speculate to accumulate. More HMRC Inspectors means more inspections, more freelancers having their status overturned, and an increased tax take for the Treasury.
5. HMRC to issue best practice guidance notes on how to engage self-employed workers: This one could be interesting. Maybe they will simply recommend using Hudson Contract!
As always, we will ensure we understand and fully comply with whatever comes next, leaving our clients to get on with developing their businesses, winning work, delivering projects and chasing payments.