Categorized | contractor expenses, news

Will Self-Employed NICs be Tories Get Out Of Jail Free Card?

So, the Conservative Party swept into power while two thirds of the UK wasn’t looking. But was their promise to freeze income tax, VAT and national insurance the clincher? Or was it the promise of a referendum on EU that Mr Cameron promised (knowing full well we’ll vote to stay in) that bought the keys to Number 10?

In a post like this, I’d be tempted to say, “Well, it doesn’t matter, now. The Tories are in and that’s that.”

The problem is, that isn’t that. At least not as far as taxation goes.

Vultures are waiting for the first sign of a hike in tax

Already, all eyes are waiting for the first sign of a tax increase. The market was truly shocked by the pre-election tax-freeze promise, given how tentative economic recovery is.

Mr Cameron must be as confident in the UK recovery as he was of his continued tenure in Downing Street. He was, after all, the first Prime Minister in an age not to have a bag packed ready to vacate No 10 had things gone horribly wrong last Thursday.

And they could have. Just ask Messrs Farage, Clegg and Miliband (not to mention Balls and Cable) how quickly the political tide can change.

An article in today’s Financial Times hinted at several ways the new government could sneak tax increases in on the blind side. At least in a way that won’t have the electorate calling for Mr Osborne’s head.

The Conservative Party has, as the FT says, “boxed itself in” with the taxes that the average working man pays. They’re frozen for the full term of the next government; any move to the contrary could be political suicide.

But that’s the key: the average working man. At the beginning of this government, there are a lot more unaverage working men and women than ever before.

Are contractors a victim of their own success?

Self-employment has propped up employment figures during the recovery. While growth may have slowed in comparison, freelancers and contractors continue to set up shop for themselves in droves. And this is one of the areas the Treasury could exploit.

Anyone operating through a limited company draws low salary and dividends. It’s an age-old tax planning measure that, when done correctly, offers a considerable (compliant) saving.

The Conservatives may well look at eliminating this ‘preferential treatment’, as the FT puts it. They wouldn’t be increasing NICs, per se. Just making less of it available as tax relief for limited company directors.

Other taxing conundrums for contractors (and their accountants!)

In addition, we already know that certain benefits for umbrella contractors are in jeopardy. There’s still plenty of discussion ahead, as promised. But the 2016 end date of travel and other expenses for ‘managed employees’ looks more certain than ever.

The Tories have given themselves very little room to manoeuvre on tax. As such, the crackdown on evasion and aggressive avoidance will go further than a few expenses.

Couple this with those earning in excess of £150k about to cop for a rise in pension tax and contractors could soon need all the help from their accountants that they can get. Moreso now than ever.

And they say that the Conservatives are the party of free enterprise? Ironic, then, that the freeze on tax for the working man may see entrepreneurs footing the bill.

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