Labour plans to clamp down on disguised self employment

As the election draws closer and closer, the parties are setting out their stalls when it comes to their policies concerning self employment, and Labour have stated that they would bring in new rules which would make it harder for those who use their employment status to avoid paying tax. The party plans to raise around £7.5 billion through the introduction of ten new measures which include their plans to combat ‘disguised self employment’ through the use of what they have described as ‘strict deeming criteria’.

The additional annual yield that the party hopes to achieve will be made possible, they hope, by revenue raised from those currently avoiding and evading tax. According to the Labour party, their plans could also include a request to the Bank of England to launch an investigation into the scale of the ‘informal economy’. Any investigation of this sort would be likely to concentrate on the risks to the tax yield and the ‘tax gap’ between the level of tax that should be collected and that that actually is collected, largely caused by evasion and avoidance.

There is another measure which could have an impact on freelancers and that is the election pledge to minimise tax avoidance by asking dormant companies to report more frequently, thus preventing them from being used for avoidance activity. Ed Milliband has expressed his concerns about the billions of pounds of tax revenue which has gone uncollected during the current government’s term. He blames the Tories for failing to close the ‘loopholes’ which have allowed many to get away without paying the correct amount of tax.

According to the figures Mr Milliband is referencing, the last Labour government reduced the tax gap by around £1.5 billion a year between 2005/06 and 2009/10 whereas he claims that the level of uncollected tax has risen under the current government by around £1 billion a year.

With the Tory manifesto due to be revealed imminently, the Labour party believe that they will struggle to identify a way to raise the level of revenue they need, around £5 billion, through avoiders and evaders. The Labour party’s plan, however, has been laid out and posted online to their website, and there is expected to be further elucidation on the individual points when they release the details of their own manifesto.

Anyone considering making the change to contracting can learn about the amount of take home pay they can expect using our contractor calculator and learn about the kinds of business outgoings that they can include as expenses on their tax return using this guide to contractor expenses. You can learn how to save money using the Flat Rate VAT Scheme gain an understanding of IR35 and learn about what life is like as a contractor from our case studies.

If you are a contractor and want to understand the implications of potential changes in legislation, then using a dedicated accountant to provide advice and guidance is a great way to keep on top of everything without it taking up all your time. Call our team today on 01442 275789, book a one to one meeting or email your enquiry to newbusiness@sjdaccountancy.com.

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