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Summer Budget - what a shower! Chris Bryce, CEO of IPSE

Independent professionals from the Isle of Skye to the Isle of Wight woke up
this morning (9 July) feeling they have been mugged following the summer budget.

The Chancellor has greatly disappointed us by listening to the army of faceless
wonders in HMRC and threatening contractors throughout the UK.

If you work through your own limited company things are going to get tougher,
much tougher.

HMRC dealt not one, not two, but three blows to the UK's smallest businesses
yesterday. In all cases we believe the blows are below the belt!

First, arcane rules known as IR35 are ominously to be made 'more effective'.
These rules try and almost always fail to separate disguised employees from
genuine businesses.

Second, new restrictions on travel and subsistence expenses are to be imposed on
one-person limited companies.

Third, there is a significant tax hike on dividends - a change that will affect
all company directors, not just independent professionals.

IPSE has consistently called for IR35 to be abolished and we will take this
latest review as an opportunity to again point out the plainly obvious flaws in
these rules. However the language used in the Red Book suggests the Government,
led by HMRC believes the rules need to be strengthened, rather than removed.

Indeed the Prime Minister promised IPSE just prior to the election that; “I
appreciate the concern over IR35 and that is why I asked HMRC to IMPROVE the way
in which it is administered.”

In fact HMRC, in an email straight after the Budget to IPSE, talk about a more
fundamental reform needed to improve the effectiveness of the rules. This
doesn’t sound like improvement this sounds like attempting to get more money
from contractors.

We at IPSE call on the PM to ensure the word ‘improve’ is high on the HMRC
agenda. By ‘improving’ we want to see fairness in dealing with this insidious
tax, a tax that is acknowledged by most people as ill thought out and
cumbersome.

That shower at HMRC could surely find a tax system that is fair to all,
transparent and easy to use. We have no trust in the tinkermen of HMRC.

The galling aspect of this announcement is the Government's willful
misinterpretation of the findings of two previous reviews by a House of Lords
Select Committee and the Office of Tax Simplification.

In both cases it was found that IR35 was unclear, ineffective and should be
removed or replaced. The Government appears to have latched on to just the
'ineffective' bit and now wants to reinforce an outdated, outmoded and widely
criticised system.

The real sting in tail of this Budget is the travel and subsistence proposal.
Independent Professionals travel the length and breadth of the country and
abroad, visiting their clients' sites and providing much needed expertise. It's
an expensive business and if those expenses aren't tax deductible, they won't be
able to do it. It's as simple as that.

This restriction could end up cutting off business opportunities for independent
professionals and crucially it could cut off a vital resource supply for the
clients. It's short-sighted, it's bad for businesses and it will put the UK's
smallest businesses at a huge competitive disadvantage to large businesses. A
consultant working on his own will no longer be able to take a contract with a
client at the other end of the country, but KPMG will. I believe that unless
these rules are implemented very carefully they will have detrimental impact on
the whole UK economy.

Not only did this Budget make life more complex and arduous for independent
professionals, but it also makes it less profitable. Company directors will now
have to pay 7.5% more tax on any dividend payments than before. This is a move
that will hit all 'closed companies'. It's a tax on entrepreneurship.

This Government has laid strong foundations in dealing with and encouraging the
self- employed sector. The recently announced review of self-employment, the
setting up of the business conciliation service and the reappointment of the
ambassador for the self-employment are welcome.

It is a shame that HMRC officials are not singing from the same hymn sheet as
their colleagues at the Department of Business, who seem to have a real and
positive vision for this sector.

We at IPSE expected better from a Government that lauded and championed the
self-employed sector.

David Cameron stated in the IPSE magazine that: “The self-employed are a key
part of our long-term economic plan for the country.”

It’s easy for the Government to talk the talk but actions speak louder than
words. They must not allow that shower at HMRC to dampen the enthusiasm and
drive of this vital sector.

IPSE will be raising our concerns directly with HMRC at a high level meeting
next week, we have already lobbied senior Government figures and spoken with
other stakeholders who share our concerns. We will consult with IPSE members on
the travel and subsistence proposals and robustly respond to the Government’s
consultation.

IPSE is the voice of the independent contractor. And that voice will be heard
loud and clear.