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UK Election 2024: Impact of policies on contractors

With the General Election taking place this week, contractors will be keeping a keen eye on the election campaign coverage to see how their finances will be affected. If you are a contractor, it is vital to know which parties have made pledges that may affect your work. There are a range of policies that will affect how contractors may choose to work following the election, and it is crucial to understand the stances of the main parties. Reform UK has made sweeping statements regarding business taxes and IR35. The Conservatives are aiming to reduce business taxes in the long run. Other political parties have a variety of policies which may impact contractors. Read on to discover the policies we think will most affect contractors.

The UK general election

The General Election is on the 4th of July 2024. With many contested seats, there is no certainty of a clear winner in most places. Therefore, the leaders of the next government and the mandate that they will have is unclear. Understanding the changes that each party has planned is vital in knowing the effects of the election on Friday when the results are released.

As our earlier blog on the UK general election mentions, there are low expectations of meaningful tax changes, and any changes that happen are likely to be a few years away. Labour and the Conservatives are planning for any changes to be introduced slowly, meaning immediate changes are unlikely. Smaller parties with more radical policies, such as Reform UK, have plans for immediate rehauls of legislation. While it is unlikely to see majorities for these parties, they may constitute enough of the next parliament to mount pressure on the next prime minister for more immediate change, according to recent opinion polls.

Policies affecting off-payroll workers

For freelancers and contractors, a big worry is the rules about off-payroll working, often called IR35. The rules decide if contractors are taxed as employees or are truthfully self-employed. Potential changes to National Insurance contributions (NICs) and taxes on businesses will also play a substantial role in determining the amount of take-home pay enjoyed by contractors.

Policy pledges on IR35 changes

The most striking pledge surrounding IR35 is from Reform UK. Nigel Farage’s party’s manifesto pledges to abolish IR35 rules to support sole traders. Many contractors have been lobbying for this change, which is the most drastic election policy regarding the off-payroll working rules. Reform has numerous policies aimed at increasing the take-home pay of contractors and boosting the economy by strengthening the self-employed sector.

The Liberal Democrats have mentioned IR35 and pledged to review the legislation to ensure self-employed individuals are treated fairly. One of their aims is to establish a new “dependent contractor” status between employment and self-employment with basic rights such as minimum earnings, sick pay and holiday entitlement. They have also promised to review the tax and National Insurance status of employees, independent contractors and freelancers to ensure fairer and comparable treatment. For contractors, the Lib Dem manifesto offers promising changes to employment rights and IR35.

While the Labour Party has not explicitly mentioned IR35, they have announced policies that will affect off-payroll workers. As part of their goal to improve working conditions for all workers in the UK, Labour has promised to ensure basic employment rights for all workers and to move towards a single-worker status for all except the genuinely self-employed. It is unclear exactly how this may impact contractors and IR35. Under Labour, contractors may see changes to the benefits they are entitled to and changes to what kinds of work qualify for off-payroll employment.

The Conservatives have also made no specific pledges regarding the off-payroll working rules. Under the last 14 years of Conservative governance, contractors have been faced with revisions to the original IR35 legislation, such as shifting the burden of contract determination onto the end client in many cases and tightening the rules stipulating which contracts fall outside the scope of IR35. The general consensus is that contractors should not expect any drastic changes to IR35 should the Conservatives continue to govern the UK.

Will VAT be impacted?

Businesses in the UK charge VAT on goods and services. Currently, a business is only obligated to register for VAT if its turnover exceeds £90,000 in any 12-month period. However, registering if your turnover is below this threshold, known as voluntary registration, is possible. Contractors operating through a limited company will have to be aware of this threshold. They may wish to register for VAT as it can help save money when buying equipment and software and travelling for a contract.

None of the parties have made any indication of increasing the VAT rates, with the Conservatives and Labour explicitly committing to maintaining the current rates. The Conservative Party has pledged to keep the VAT threshold under review and to explore options to smooth the registration threshold for small businesses crossing the turnover limit. Reform UK’s manifesto promises to raise the VAT registration threshold to £150,000 to reduce the compliance demands on limited company directors with smaller turnovers. This is the only firm pledge to alter the existing VAT regime. Therefore, it seems likely that contractors will not see any changes to their VAT obligations in the wake of this election.

Corporation tax pledges

The main corporation tax rate is currently 25% for businesses with turnovers over £250,000. For companies with profits under £50,000, the rate is 19%, and if the company’s turnover is between the two, there is a tapering system which will reduce the marginal tax rate from 25%. Labour and the Conservatives have promised not to raise the headline corporation tax rate above 25%. On the other hand, Reform has pledged to reduce the corporation tax rate to 20% and then further to 15% after three years.

Support for small businesses and self-employed

All parties have stated that they recognise the importance of self-employed contractors and how much they contribute to the economy.

The Liberal Democrats have announced that they want to shift the burden of proof in employment tribunals onto the employer in all situations and raise the tax-free personal allowance, albeit by an unspecified amount. Furthermore, contractors stand to benefit from their plan to mandate the prompt payment code for big businesses. The prompt payment code requires companies with over 250 employees to pay 95% of invoices to small companies within 30 days, which would help ensure reliable cash flow for contractors.

The Conservatives are looking to increase take-home pay for self-employed individuals by abolishing Class 4 NICs during the next parliament without affecting their state benefit entitlement. However, with corporation tax fixed and no planned changes to Income tax, there is relatively little else in their manifesto to support contractors regarding lower taxation.

The manifesto that contractors would benefit the most from is Reform UK, which pledges to raise the personal income tax allowance to £20,000. This, paired with the lower corporation tax proposed by Reform, would mean contractors would see more earnings in their pocket after tax.

Labour’s manifesto contains relatively few provisions for the self-employed. With no tax cuts proposed that would benefit contractors working through limited companies, the manifesto does little to ensure more take-home pay for contractors.

Which parties will benefit contractors?

Contractors, especially those who run their business through a limited company, need to consider which parties will benefit them the most. The Conservatives and Labour have relatively few policies that will benefit self-employed individuals, with smaller parties promising many of the more advantageous reforms.

Plans to review, or scrap IR35, by the Lib Dems and Reform UK are the most promising in terms of changes that will help contractors. However, taxes look set to remain at the current levels for businesses and individuals, at least for the next few years, regardless of the outcome of the General Election.

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