THE BEGINNING OF BREXIT
The underlying causes for both the referendum to be called and the shock result are complex, but what was soon clear was that the process for Britain to leave the EU would be costly and time consuming.
Whilst wondering what the social and political implications were for the future of the UK as one of the main areas of concern was how will Brexit affect UK businesses. Both from a tax and movement of labour perspective, how will the subsequent tax policies affect contractors and limited companies in the UK since they are huge players within the economy?
With the need for a competitive market for UK businesses outside of the European Union, the Government will need to ensure that the UK is still a place for overseas companies to invest. There are no plans to alter the forthcoming reductions in corporation tax, although the tax ramifications will largely hinge on the type of deal that can be agreed in negotiations with the remaining EU countries.
There are anticipated headwinds to be faced by UK businesses in the short term, regardless of the final deal that is presented to Theresa May’s table. It is this negative business climate that might have more of an effect on individual contractors working via self-employment or via a limited company, rather than direct taxation changes.
The most obvious change will be a restriction of the freedom of movement for Europeans wanting to work in the UK, therefore a reduction of more casual contracting labour entering the UK from Europe. There are no anticipated changes in the personal taxation rates that would directly affect contractors after the leaving period out of the EU.
although if the UK economy struggles as a whole, then this cannot be ruled out as a method of the Government boosting tax receipts.
THE POTENTIAL PROS AND CONS FOR CONTRACTORS
There is a great level of uncertainty in the UK markets, UK companies will be hesitant to apply any long-term verdicts such as hiring staff permanently without knowing how this change will affect them. As such, they are likely to hire contractors, as projects will not stop coming in. Contractors are hired for stipulated time periods and tend to flourish when market conditions are unsure. This might also present great opportunity for contractors to show their worth.
While the reduction in corporation tax will benefit companies, the fact remains that there have already been job losses as companies relocate to European destinations to ensure access to the EU market post-Brexit. If this trend continues, then the likelihood is that job market in the service and finance sector will shrink significantly and opportunities for contractors will also reduce.
The UK will no longer be bound by certain EU tax laws and the EU will also no longer comply with certain UK laws, especially in regard to tax incentives. At present, the UK has several tax incentives that help businesses but these are limited due to EU policies, which consider an excess of tax giveaway as “State Aid”, something that goes against the notion of a single European market.
FUTURE OF CONTRACTORS IN THE UK
There are two main Brexit scenarios for contractors: the positive short-term impact as companies need to finish outstanding projects and the more negative longer-term impacts of an economy that will likely contract as the effects shall take hold.
The likelihood therefore is that the short-term picture for contractors in the UK is positive, as contracting flourishes in uncertain economic times. However, once the period of uncertainty post-Brexit is over, the reality is likely to be that there are fewer jobs in the UK for both contractors and traditional workers alike, unless a reduction in European companies trading in the UK can be offset with an influx of companies from other parts of the world.