Summer Budget 2015: Three reasons PSC contractors should be cheerful

Summer Budget 2015: Three reasons PSC contractors should be cheerful

27 July 2015

Several weeks on, the contracting and freelancing sector has had time to digest George Osborne’s ‘emergency’ summer Budget. In case you missed it, the chancellor had several nasty surprises up his sleeve on 8th July as he delivered the first all-Conservative Budget since November 1996. In what was described by industry commentators as a four-pronged attack on limited company contractors, the MP for Tatton announced that: 

  • A new tax on dividends would be introduced, with a view to tackling “tax-motivated incorporation”;
  • Travel and subsistence tax relief for contractors working through a personal service company  (PSC) or umbrella firm would be restricted from April 2016, where the end client exercises  supervision, direction and control;
  • IR35 would be the subject of a review designed to improve its effectiveness; and
  • Companies where the director is the sole employee, including many contractor PSCs, will from April 2016 no longer be able to claim the NICs Employment Allowance.

On a more positive note, corporation tax will be cut to 19% in 2017 and 18% in 2020. This, however, seemed scant consolation following a Budget that was generally seen as ‘anti-contracting’ and particularly negative for contractors working through their own company.

You can read about the specific measures in more detail here, but here are three reasons we believe the summer Budget wasn’t all doom and gloom for PSC contractors and freelancers:

1)Limited company is a still a great option

Despite Mr Osborne’s reforms, operating through a limited company is still an extremely attractive way of working for many skilled, professional freelancers and contractors. The dividend reforms will make a PSC slightly less tax efficient, but the impact won’t be as severe as some scaremongering commentators have suggested. As for the forthcoming clampdown on travel expenses, we’ll have to wait to see the legislation but it seems probable that – owing to the point about supervision, direction and control – genuinely independent contractors won’t be affected. Let’s not forget, either, that tax and expenses are not the be all and end all. Click here for more on the benefits of going limited.

2)The worst may well be over

The chancellor clearly had PSCs in his sights in this Budget. Without wishing to tempt fate, it seems reasonable to assume that future Budgets will contain fewer attacks on contractors. Put simply, it may well be the case that all of the bad news has been dished out in one go. One thing is certain – Mr Osborne will have a clearer idea of the importance of the contracting sector once an indignant industry has made its feelings clear in the various consultations.

3)Demand shows no sign of weakening

The bottom line is that, whatever successive governments have thrown at our sector, skilled professionals continue to make the leap to contracting in pursuit of greater earning power, enhanced freedom and flexibility and a better work-life balance. This time around is no different. Indeed, if the number of enquiries we’ve received in the past few weeks is anything to go by for the sector as a whole, the idea of becoming a contractor is more popular than ever. More importantly, there is no sign of demand from recruitment firms and their clients for flexible, independent talent tapering off – quite the opposite. Contracting is here to stay, regardless of what politicians and civil servants think or do.