Any rabbits in Jeremy Hunt’s hat at Spring Budget 2023 won’t be pulled out until next year

Spring Budget 2023 next Wednesday is an important budget, not just for Jeremy Hunt and contractors, but for the UK as a whole, writes Kate Cottrell, founder of IR35 advisory Bauer & Cottrell.

Hunt’s hands are tied, he will say

But the March 15th Budget is one where I expect the chancellor will claim that his hands are tied because of inflation, the war in Ukraine, and the unaffordable pay demands of the public sector, to name just a few restrictors. 

Contractors and the contractor sector already know that Mr Hunt has a vision, as he set out in his speech to Bloomberg HQ on January 27th. But despite his stated objectives for long-term prosperity in the UK, my expectation is that little will change for independent professionals.

Hopes & Dreams

The sector’s hopes and dreams are well-known and long-established.

The dreams? Repeal the off-payroll rules; abandon HMRC’s CEST tool and regulate umbrellas with the Single Enforcement Body.

As to the hopes -- which seem to have more chance of being realised on March 15th, they include making dividends less taxing, addressing the IR35 off-set issue (flagged up in a Feb 2022 probe into IR35 and which results in HMRC collecting more tax than is due), and scrapping or staggering the planned corporation tax increase from April 2023.

The full ‘Hopes and Dreams’ list is much longer, but the above are just a few of the key things that, sadly, many parties have highlighted to the government year-after-year and to chancellor-after chancellor, but with no effect.

Expect more research, reviews and consultations

The government always likes to claim it’s ‘listening’ to lobbyists and the people at large. The easiest way for it to show this is to say they’re aware of the issues and so will conduct a review; a ‘call for views,’ a consultation. Or they might commission research. 

The scope of each of these exercises is of course set by government and many experts in the past have understandably called into question the value of such activities. Nevertheless, it is a great way for government to kick the can down the road.

Expect to hear of HMRC’s large amount of tax collected

If it’s sounded as I expect next Wednesday, such a statement is bad news for the contracting industry because government will claim that the high tax take demonstrates that the off-payroll rules are working. And they will probably use that claim to justify how useful the CEST tool is.

Truthfully, a nice yield for HMRC is a direct result of the government’s overall tax policy which at the time of writing makes the UK one of the highest taxed countries in the world.

It is also true that HMRC will have evidence of those contractors who have moved from a limited company (a Personal Service Company), but it is impossible to accurately gauge how many were forced to do so. And fortunately for some, it’s also impossible to say how many contractors have been wrongly categorised as inside IR35. Now that would be one piece of government research we could all get behind!

Any rabbits due to get pulled from the chancellor’s hat?

Yes, a rabbit or two pulled from the chancellor’s hat on March 15th is a possibility, but it will be based entirely on the need to demonstrate that they can be seen as the party that supports business and consequently growth, as called for by many MPs. 

The government will have to do something. Perhaps a change of heart over the corporation tax rise for companies with profits over £50,000? Or might they afford a slight increase in the dividend allowance. The latter would likely please HMRC, because it would stop the rise in individuals being dragged into the Revenue’s self-assessment system simply for holding a few shares! And while it might be Easter very soon, if it’s something to get your teeth into that you’re really after, any sizeable rabbits will be saved for next year, closer to the general election.

Will Spring Budget 2023 bring new bad news for contractors?

Unlikely, as all the not-so-nice things already announced will still be in-force or incoming. 

Some commentators are suggesting the removal of the small company exemption for the off-payroll rules. My hope is that such suggestions are nothing more than scaremongering. Extending the April 6th 2021 framework to all PSCs, no matter what the size of their end-client is of course possible -- yes, but so too is just about anything else given the current climate.

Boding well for the exemption staying, we already have firm evidence of the significant costs to medium and large business of implementing the rules. It would hardly help growth or the chancellor’s own dream of the UK becoming the next Silicon Valley.

In summary…

We can hope and dream and have a vision just like the chancellor. But the 2023 Budget’s contents have to be seen from the political perspective with a general election in the future. It’s likely that many hopes and dreams will be realised along with a few rabbits pulled out of hats but not until March 2024, at the earliest.