With the General Election just weeks away, we look at how the major parties’ policies have affected the contracting industry and ask you to take part in our election poll.
Contractors and other small business owners typically take a keen interest in politics and are far more likely to vote than the average citizen. A survey carried out late last year by IPSE found that 88% of its members planned to vote in the General Election.
But, with coalition politics likely to remain with us for the foreseeable future, the smaller parties now hold more power than ever before, as the recent leadership debates have shown.
Here we look at the impact the policies of the current and previous administrations have had upon the contracting industry, and how direct taxation has fared.
Poll – How will you vote?
In many contractors’ eyes, Labour will never be forgiven for introducing IR35 (Dawn Primarolo, the Paymaster General who introduced the rules in 1999 was a cartoon hate figure for many years). But, then again, IR35 remains firmly in place, five years after the Coalition came to power.
Public sector contractors now have to prove their employment status each time they start a new role, and the ‘Business Entity Tests’ were so bad that they have been abolished. The Treasury continues to yield peanuts from IR35 compliance reviews but continues to claim that the cost of abolishing IR35 is “£550m” per year, based on dubious evidence, which has been widely ridiculed.
The current Government has also created a fair amount of fresh red tape for the contracting industry over the term of this parliament, with the introduction of onshore and offshore intermediary legislation, the Agency Workers’ Regulations, the forthcoming travel and subsistence expenses restrictions, and the clampdown on the use of ‘personal service companies’ by public service workers (including contractors).
Much of the new legislation is aimed at unscrupulous service providers, but the increased compliance burden affects all ethical service providers too – and contractors themselves.
Direct taxation – the past and the future
- Since the last election, the Coalition cut the ‘additional rate’ of income tax from 50% to 45%, where it remains, and although the personal allowance has risen dramatically over the past 5 years to £10,600 in 2015/16, the higher rate threshold has not kept up with inflation, so more people than ever are paying 40% tax on part of their income, due to the effects of fiscal drag.
- Labour would almost certainly restore the additional tax band to 50% (for incomes over £150,000). They would also introduce a new 10% starting rate of tax.
- The Conservatives have pledged to increase the threshold for higher rate tax to £50,000 during the next five years.
- Both the Tories and the Lib Dems would raise the personal allowance to £12,500 over the course of the next parliament.
- Controversially, in 2013, the child benefit rules were changed, with entitlement to benefits for a family which has a single breadwinner earning above £50,000 per year reduced (and removed completely at the £60,000 mark). But if a family has two breadwinners earning £49,000 each (£98,000 in total per year), they keep their entire entitlement.
- The main rate for VAT rose from 17.5% in 2011 and has remained at 20% ever-since. The small profits’ rate of Corporation Tax has fallen from 21% to 20% in 2011, and the main rate (paid by larger companies) has fallen significantly over the last parliament, from 28% to 20%.
- Both major parties say that have no plans to increase income tax, National Insurance or VAT. But most parties say this before an election.
- Significantly, the Lib Dems say they would raise the tax paid on dividends by 5% should they regain power (which will have a large impact on limited company contractors’ tax home pay).
- The Employment Allowance refunds the first £2,000 of employers’ National Insurance Contributions (NICs) for all businesses – including contractor companies – if their salaries are £8,060 or higher (2015/16).
- The Annual Investment Allowance (AIA) provides tax relief on equipment purchased by companies up to a value of £500,000 per year, and small business rate relief means that you will pay no rates at all if the rateable value of your premises is £6,000 or less. However, businesses will have to wait until later in 2015 to find out if the AIA will be extended into 2016.
The parties’ views on the self-employed
Unsurprisingly, all the major parties have pledged their ongoing support for the country’s swelling ranks of self-employed people.
Speaking to contractors’ organisation, IPSE, UKIP’s leader, Nigel Farage promised tough action on the ongoing problems of late payment, and said: “We believe that the UK’s 4.5million self-employed are our greatest innovators who deserve the support of, not interference from, the state.”
David Cameron said that there had never been a better time to start a new business, and highlighted that his party had “changed the tax system to support the self-employed, clamped down on late payment, set up schemes like Start-up Loans and liberated sole traders from needless regulations like health and safety”.
Nick Clegg told the group: “If you want a glimpse of the sort of worker that will thrive in the new economy, you need to look no further than the growing number of self-employed professionals.”
Ed Miliband was unable to provide a comment to IPSE.
So, who will win the election?
All the polling data points to a hung parliament, with neither the Conservatives nor Labour able to achieve an outright majority.
Tradition dictates that David Cameron will be given just under two weeks to create a formal or informal coalition to provide the majority he would need to govern. Otherwise, Ed Miliband will be afforded the opportunity to do so.
For some useful summaries of the parties’ key manifesto pledges, try this handy guide from Business Zone, and some excellent guides from Contractor UK.