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Has lack of NIC payments compromised contract workers?

There are around 1.4 million contractors and freelancers in the UK workforce at last count, and these interim workers have been a driving force in the economic recovery – but arethe lack of NIC payments coming to the government a bad thing?

Flexible workers are an attractive option for employers because businesses don’t have to pay employer’s NICs for work undertaken for them by a freelancer. Contractors themselves also pay far less in NICs as well, which means there’s more money in the pockets of freelancers with every pay cheque, leaving them more cash to put back into the economy as well.

However, with fewer NIC payments coming in to the Government, it has had to scramble to find other sources of income.  Off-payroll rule legislation and stepped-up IR35 enforcement are two ways the Government is trying to make up the shortfall, but the money gathered from these sources may be a slow trickle when compared to the revenue lost from NICs, leading many to believe that contractors have been comprimised by the lack of NIC payments.

There are some discussions underway currently regarding ways to regain lost tax revenue more efficiently, but workers are not looking forward to such an arrangement because they mean they’re going to end up paying more in taxes than they do now. Some of these new taxation schemes in the planning stages – such as increasing compliance to make sure those using tax avoidance schemes don’t wriggle their way through the net – will not have as much as an impact, but other proposals for taxing contractors like employees and merging income tax with NICs could only work to drive freelancers out of the market in high numbers.

IR35 already exists to catch those who abuse the system and the off-payroll rules and controlling persons legislation are more examples of quick fix patches to mend a leaky pipe. IR35 does not work and most flexible workers pay less NICs as a result of using perfectly legitimate trading models like limited companies. No amount of ‘disguised employee’ legislation can address what is a major workforce trend.

Limited company contractor witch-hunts by politicians and the media saw a direct comparison between the circumstances of employees and flexible workers – they are not comparable; employees get paid holidays, sick pay and a raft of other benefits, contractors and freelancers do not. And, they not only receive none of these benefits, freelancers also have to make provision for holiday, sickness and pensions, and all the costs of running a business, out of their fees. What’s more they don’t enjoy employment rights and run the constant risk of not getting paid – neither do they have the relative security a full time position as an employee brings.

Taxing flexible workers and the employed the same would be a massive disincentive to a resource that is adding value to UK plc; 1.5 million freelancers are contributing more than £100 billion to the UK economy. We want to encourage this flexible resource to grow and thrive, not punish them so that it has the opposite effect of driving them out of contracting and even out of the UK altogether.

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