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What does the election mean for contractors?

The General Election could be decided by the self-employed

Although Brexit is the main focus in this General Election, it should not be the only issue on the table. Behind all the back-and-forth between Leavers and Remainers, there is still a country and an economy to run. There are millions of businesses of all sizes across the UK looking from party to party to decide who will represent their interests.

At their forefront is the UK’s dynamic self-employed workforce. Contractors and the self-employed are vital to the economy. Not only do they contribute £305 billion to it every year; they also bring flexibility and productivity to businesses across the country. After a boom in numbers in recent years there are now nearly 5 million of them. That is 5 million votes that are up for grabs. However, in recent years, successive Governments have arguably done more to harm this cohort than help them.

To get the parties thinking about self-employment, IPSE has launched our own manifesto. Across forty policy recommendations it sets out a vision for how the next Government can gain the support of the self-employed and secure the future of freelancing. The manifesto contains policy suggestions for a list of contractors’ needs, from tougher action to deal with late payment to improved broadband access. But at the top of our list is reform of our overcomplicated tax system – symbolised by IR35.

An outdated tax system

Fundamentally, the current UK tax system simply does not work for the self-employed. It is an outdated system built with just two groups in mind: employees and employers. Now, it is struggling to keep up with modern kinds of working like self-employment. Instead of redesigning the tax system to incorporate modern ways of working, Governments over the last 20 years have tried to tinker with it. Rather than grasping the root of the problem, they have made it worse with cumbersome and damaging policies like IR35 and the hugely controversial ‘Loan Charge.’

Several surveys in recent months have shown the worrying extent to which companies in the private sector who engage contractors are totally unprepared for the changes to IR35, due to come into effect in April next year. Some of the biggest companies using contractors, particularly in the banking sector, have already indicated they do not want to take on the risk
of hiring contractors post-April.

Contractors hold the key

At a time when growth is weak and Brexit uncertainty continues to dampen the economy, we need our business environment to be firing on all cylinders – continuing with this wrong-headed policy will not help. In our manifesto, IPSE is calling for a wide-ranging review of small business tax, scrapping IR35 and ending confusion over the Loan Charge in order to boost the UK’s entrepreneurial spirit.

In this election and over the course of the next parliament, we will be pressing for a system that recognises the tremendous value the self-employed add to the economy. The flexibility they provide and the specialist skills they bring give the UK one of its greatest competitive advantages. We cannot afford to implement a tax system which dampens the vibrancy of the self-employed sector or discourages companies from engaging independent workers.

Parties set out their aims

Early indications of the parties’ approach to these issues has been mixed. The Liberal Democrats were the quickest out the gates – encouragingly, the party shows it has been listening to the self-employed community. Its manifesto commits to “End retrospective tax changes like the Loan Charge brought in by the Conservatives, so that individuals and firms are treated fairly, and review recent proposals to change the IR35 rules.” A welcome and clear approach.

Labour’s manifesto makes plenty of references to the self-employed, particularly on issues such as pension access and late pay. At IPSE’s recent election, the party’s shadow small business spokesperson Bill Esterson said (and later confirmed) that Labour would not implement the rollout of the IR35 changes to the private sector and review its operation in the public sector. But this commitment does not appear in the manifesto itself and Labour’s plans to revamp our employment status legislation by merging the ‘worker’ and ‘employee’ categories could end up generating more confusion.

The Conservatives, meanwhile, commit to launching “a review to explore how we can better support the self-employed” which includes “making the tax system easier to navigate.” Later in the document they talk about redesigning the tax system in a way that rewards entrepreneurship and punishes evasion, but there are few details of what these plans will really mean.* Elsewhere, the party’s biggest tax-related plan is increasing the threshold at which National Insurance Contributions are paid to £9,500 next year.

To secure contractors’ votes, parties should be making a bold pitch to them – starting with a tax system that fits with the way we work now, not the way we worked thirty years ago.

IPSE’s manifesto, 5 Million Votes, is available to read here. If you would like to get involved, use the hashtag #5millionvotes on social media, speak to your local candidates about what they would do to support self-employment, and register for IPSE’s election hustings in London and Glasgow (more information here).

*Since publication of this article, the Conservative Party has promised a review of IR35.

By Alasdair Hutchison

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