Limited company contractors may be the target of new anti-avoidance measures hinted at by Chancellor George Osborne in his 2013 Autumn Statement.
The Chancellor promised to take further steps to reduce both illegal tax evasion and legal tax avoidance. He sees this as bringing in more than £6.8 billion of new revenue, “more than any other fiscal event this Parliament”.
On top of that, the Autumn Statement says the government will “clamp down further on tax avoidance and aggressive tax planning, including by preventing employment intermediaries from disguising employment as self-employment to avoid tax”.
The Chancellor is to put HMRC under even greater pressure to produce more with less. He has increased the taxman’s target for securing additional compliance revenues by an extra £3.7bn by the end of 2015-16, on top of the £120bn already forecast. That is likely to result in even greater stress being put on getting more tax out of limited company contractors and other small businesses that don’t use the standard PAYE model.
“The government’s measures to tackle tax avoidance, evasion, fraud and error are very ambitious,” says ContractorCalculator CEO Dave Chaplin. “Aiming to raise more than £9bn over the next five years is laudable, but anyone following the current Lord’s review of personal service companies and IR35 can only conclude that targeting limited company contractors is unlikely to provide any sort of reasonable return on investment to taxpayers. Unfortunately, that’s something the Chancellor, the Treasury and HMRC seem unlikely to concede.”
On a more positive note, growth forecasts for 2013 have more than doubled to 1.4%, and have also been revised up for 2014 from 1.8% to 2.4%. Combined with increasing government investment into infrastructure, and the positive trends seen in contracting in recent weeks, the outlook for contractors appears bright.
But Chaplin is disappointed at the lack of support for contractors: “Sadly, George Osborne confirmed what many in the contracting community have suspected for some time; that he and this government don’t understand the benefits to UK PLC of contracting. Nor do they appreciate how supporting contractor limited companies can only help the economy – and tax revenues – grow.”