Brexit decision: how UK contractors are affected

Last Thursday’s historic vote for the UK to leave the EU has big implications for contractors, writes Andrew Chamberlain, deputy director of policy at The Association of Independent Professionals and the Self-Employed.

The post-referendum fallout has sent shockwaves through the worlds of politics and finance, making Britain’s future look unclear. In our view though, the result should be taken as an opportunity for UK business to thrive, with the government agreeing a strategy with business groups as early as possible.

However, there are a number of questions which the Brexit decision poses and for contractors, they fall into three distinct areas. They are; how UK contractors will be affected working at home; how they’ll be affected working in Europe and how they’ll be affected trading out of the UK but into Europe. The more positive your initial answers, the more likely it is you believe that the UK will be able to access the single market once our divorce from Europe completes.

Immigration

It’s currently unclear what model our immigration policy will take on. If we leave the single market we’ll regain full control of our borders, giving us the freedom to restrict EU immigration and follow Australia in introducing a points-based system. It’s important to be aware that this could actually increase competition in the contracting market as the UK seeks to attract more highly-skilled workers, as we warned on the eve of the vote.

Prominent Leave campaigner Daniel Hannan has suggested since the referendum that this may be the case -- post-Brexit Britain may not experience reduced immigration at all. Meanwhile, the poster boy of the Leave campaign, Boris Johnson, has suggested that access to the single market should be prioritised over curbs on immigration. Whether the UK can secure both, or all three – access to the market; freedom of EU movement for Britons and a points-based system in the UK for EU arrivals – remains to be seen, but it’s what Mr Johnson wants.

Also potentially affecting UK contractors at home is the fact that, theoretically and as we've taken back our sovereignty, we now have no obligation to enact EU laws. This includes employment laws found burdensome by contractors, like the Agency Workers Regulations (AWR). However, this again depends on our access to single market; Norway, for example, has some access but has to implement many EU laws in return.

The UK’s compliance landscape

As one contractor pointed out on Twitter just before the vote, IR35 is a bigger bug bear of contractors than the AWR. George Osborne, in charge of implementing the proposed changes to IR35, is very likely to leave his post before David Cameron steps down as prime minister in October. It’s not known who his replacement will be, so we don’t know what their position will be on IR35 reform. We will continue to make the case that in this time of economic uncertainty, it would be unwise to restrict the flexible labour market -- one of the UK’s great assets in driving growth and attracting foreign investment.

Another compliance cloud over contractors here in the UK that could change since the Brexit decision is Making Tax Digital. Spearheaded by HMRC and opposed by many contractors, MTD may actually be delayed in the absence of a chancellor, even though the civil servants working on this will remain in place. We will be campaigning hard to encourage HMRC to revisit its decision for all micro-businesses and the self-employed (including landlords) to have to submit quarterly tax returns.

Trade and the economy

For those professionals who are running their own small consultancies located in the UK but that trade into Europe, a number of scenarios have been put forward as to what doing business with our former EU partners will look like in future. Again though, it comes down to the single market – something that such consultancies will want to stay part of, at least “in some form,” as Mr Cameron has delicately put it. His phrasing is intentional, as he realises that paying into the EU budget and abiding by EU laws and court rulings, alongside free movement, are the conditions that countries must agree to in return for having access to the single market.

Against this backdrop, there is some concern that the UK could be pushed back into recession, which firms would find insufferable. But the economic downturn hasn’t yet been as bad as was forecast, despite sterling and the FTSE 100 falling significantly. And earlier this week, Mr Osborne said the UK economy was in a position of strength (even though it lost its triple-A credit rating), while Bank of England governor Mark Carney insisted the Bank had prepared for every eventuality. This short-term turbulence will soon be replaced by a new dynamism; at least that’s what some experts are saying. We’ll have to wait and see.

Freedom to work in the EU

But what about the post-Brexit position of UK contractors who want to work in Europe, or need to? Well, around 10% of our members regularly work in the EU and unfortunately it’s too early to say how they’ll be affected. It is likely, however, that there will be new hurdles for such contractors to continue working in EU countries, depending on what kind of deal the Brexit negotiators strike with Brussels. Mr Cameron assured us there will be no immediate effect on the freedom movement of goods, travel and labour -- but it’s possible that UK contractors may need a visa to work in the Union in future.

As a result of this possibility, we will be pressing the government to ensure trade deals and visa-waiver schemes are put in place as quickly as possible, to allow the easy transition of independent professionals to markets inside the EU.

The future (includes IR35)

Whichever uncertainty you face, whether it’s around trading into Europe from the UK; contracting in the UK or contracting in the EU, it’s clear that there’s going to be a change at the top from where you’re governed for tax purposes.

Due to his Brexit campaign triumphing, Mr Johnson looks the most likely to succeed Mr Cameron, with bookies offering even odds on this happening. Home Secretary Theresa May appears to have a reasonable chance -- but either way, a future Tory leader will probably need to be mandated by a general election. Yet if this happens, there could be an upside for contractors because the naïve proposals on IR35 reform may be shelved.

Whatever change occurs in Westminster and not just in the Tory party (Labour leader Jeremy Corbyn is facing increasingly fierce calls to step down), we will be pushing hard to ensure the government doesn’t take any action which hinders contractors. For example, we’re going to fight against any pressing ahead of the IR35 proposal in the public sector because we believe it will force contractors to either drive up their rates, or simply turn down public sector contracts.

We also want contractors’ economic contribution to the UK to be recognised, so that’s why we’d like to see a strong, pro-business opposition leader in the event Mr Corbyn steps aside. As to whether contractors themselves will be better or worse off as they continue to help shore up the UK’s bottom line due to the Brexit decision; we’ll get the answers to that once Mr Cameron’s successor has negotiated a deal with Brussels and with other European leaders. Whatever comes back, independent, entrepreneurial and adaptable contractors know better than most that new circumstances bring new opportunities. That’s certainly a reason to be optimistic for the future. 

Editor's Note: Related Reading -

Contractors' Questions: Is the Brexit decision affecting my finances?

EU VAT group reassures e-traders after Brexit vote

Osborne vows to cut corporation tax to 15%

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