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Brexit and contracting: should we stay or should we go?

Contractors may still be unsure of their position on the European Union (EU) referendum, as the vote rapidly approaches.

Let us consider views regarding the changes contractors may expect in terms of regulations and tax legislation and the likely impact on the contingent workforce.

Leave: Brexit to free contractors from EU regulations

The regulatory framework for UK contractors trading overseas would undoubtedly change if Britain were to leave the EU. Vote Leave has placed much emphasis on the shackles that British business will be free of if a Brexit occurs, adding that the large majority of small limited companies are hit by EU regulations without even trading overseas. In its response the campaign group adds:

“After 40 years of membership, only around 6% of British companies export to the EU, but 100% are caught by EU red tape and have to comply with the full burden of EU regulation. This is damaging. If we take back control we can run our economy in the interests of millions of small businesses and entrepreneurs.”

“If we regained independence, would it get any better?”

However, head of corporate development at Seven Investment Management Justin Urquhart Stewart argues that this will see little change if Britain were to regain its independence, due to the relatively small portion of regulations the EU accounts for.

“When you look at the amount of primary legislation affecting the UK, the amount coming out of Brussels actually works out at just under 7%, with the rest being home grown. In terms of secondary legislation, only 15% is inflicted on us by the EU. So I find this argument quite strange.”

People agree that the current regulatory burden on contractors and business is too high, but contractors are encouraged to consider the bigger picture when forming a view on whether or not to leave.

There is a general agreement that a dose of over-regulation has been inherited from Brussels, however there is no great feeling that a Brexit would dispense with all of these. Indeed it is even commented that the regulations relating to quality and standards are actually quite positive.

Can clarity be achieved from a Brexit?

Regardless of where they originate from, changes to tax rules arguably pose the biggest hurdle for contractors. As well as proving costly in terms of time and compliance costs, tax rules generate much uncertainty. IR35 is just one example of legislation that has been continually tampered with over the years.

Vote Leave argues that the problem of uncertainty would be reduced if Britain opts out of the EU, adding that greater clarity over the future of UK tax will be achieved from not having to comply with EU regulations.

Citing a European Commission report, Vote Leave highlights that the EU intends to take further control over multiple aspects of tax policy that could further impact contractors trading overseas, including the corporate tax base and labour taxation.

Legislation better under EU law

However, the UK retains control of taxation, currency, public spending and interest rates regardless of Britain’s EU status and the Prime Minister’s EU deal protects the UK from further integration in Europe.

This may not be the only benefit to remaining in the EU for contractors from a legislative perspective. As accountant at Haslers Debra Dougal points out, the similarities between the laws governing the UK and the rest of Europe can often provide a form of protection for the taxpayer.

“UK legislation is just an interpretation of EU legislation, and very often that interpretation is not quite as the EU intended it to be. One might hasten to suggest that HMRC interprets legislation in a way that best benefits it, at the detriment of the taxpayer. But we currently have the European Court of Justice there to defend the original position. If we were to leave the EU, this wouldn’t be the case.”

“Will the jelly change shape when you take the mould away?”

The fact that UK laws are largely derivative of EU rules calls into the question the extent of the legislative change contractors would realistically experience if Britain decides to leave.

“We’re told that we’re going to have this two year transition period, but we have gotten so far along the line with a tax system that functions within Europe,” Dougal continues. “Where does that stop? We would have to retain many of the measures already in place.”

Despite actively campaigning for changes in legislation, Vote Leave concedes that nothing drastic is likely to happen anytime soon, adding whatever decisions are ultimately made must be fully considered:

“There will be three stages of creating a new UK-EU deal. Informal negotiations, formal negotiations, and implementation including both a new Treaty and domestic legal changes. There is no need to rush. We must take our time and get it right.”

EU provides a platform to influence regulations

Whilst contractors might not necessarily experience a great deal of initial change in the event of a Brexit, BSIE contends that leaving the EU would remove an important platform for UK business to impact wider regulatory policy.

“It is vital for us to ensure that a strong British voice continues to be heard in the EU’s institutions to advance Britain’s interests,” it argues. “The UK Government is very influential in the EU, and we can use the EU to achieve things that would be more difficult on our own.”

With the acknowledgement that Britain would no longer enjoy its position of influence whilst still having to comply with regulations in order to trade with the single market, BSIE (Britain Stronger in Europe) adds: “We would be rule takers, not rule-makers.”

Contractors prepared to adapt, regardless

A leading panel of business insiders, UK200Group, convened to determine the most beneficial outcome to the referendum are seemingly leaning in favour of remaining in the EU, contractors may be tempted to follow suit, although the consensus is that the contingent market is prepared to adapt either way.

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