Is it just me or is the government giving out mixed signals when it comes to contractors?


It’s fair to say that I read a LOT of industry press (mainly so that I can keep you updated with anything that affects you on our @Corriculorec twitter feed) and there has been a lot of focus on contractors recently. There are numerous reports saying that the number of contractors in the UK is rising steadily, so much so that by 2020 almost half of all employees with be working on a freelance basis. There is also a lot of chat, including from the government themselves, about how beneficial contractors are to the economy. They are helping to improve employment figures, increase workplace flexibility and making a significant contribution towards GDP. They are also paying lots of tax because of their higher average earnings. That brings us to the main focus of attack that contractors are under; HMRC and income tax.


• You may not have heard of the ITEPA reporting requirements that came into force recently (check out my blog post for details) but now recruitment agencies are forced to report all contractor earnings to HMRC so they can ensure you’re declaring all your income.
• One way of reducing a limited company contractor’s tax liability is by paying most of your income as dividends however the Chancellor has just increased the rate at which this tax is paid.
• Another way of reducing the tax paid is by travel and subsistence claims. This is something that both limited company contractors and umbrella company contractors are able to take advantage of. This is now under attack and it looks like the government is going to use a clause of new legislation to effectively remove this as an option any more. This will have catastrophic effects on the entire umbrella company industry.
• Although it’s always been slightly shady practice, the recent on-shore, off-shore legislation means that freelancers have to use a UK based company to work in the UK or the recruitment agency is liable for any underpaid tax and NI (which of course means recruitment agencies are no longer able to work with such companies). In short, someone has to be paying UK tax.
• IR35 is a piece of legislation loathed by the contracting industry because it is ambiguous, but being found to be “inside” IR35 when you thought you were “outside” can land you with a large tax bill. Because HMRC thinks they’re not making enough money out of contractors, they are now reviewing this legalisation and from some of the rhetoric coming out of the tax office, it looks likely they are going to significantly expand the scope of IR35.


So what is the net result of all these changes? HMRC getting more and more of your hard earned cash. As all the statistics show, keeping a healthy freelance market is essential for the economy as a whole. Contracting is a fantastic way of working, and one that has a variety of advantages for different people. Not every person or role is better in a permanent work pattern but contractors seem to be low hanging fruit for HMRC to increase their tax receipts. There are currently consultations in place regarding IR35 and subsistence claims. If you work within the freelancing industry I would strongly suggest you should make your voice heard on these issues.


Victoria Watkins is Office Manager here at Corriculo Ltd. After working as a Recruitment Consultant for 5 years she moved to Office Management for an IT consultancy 7 years ago. Victoria was one of the first members of our team and deals with all of our administration and accounts. Connect with her on LinkedIn, Twitter or Google+