Spring Statement 2019: What contractors can expect
You'd be forgiven for having missed the announcement that chancellor Philip Hammond’s Spring Statement 2019 is to be delivered on Wednesday March 13th. With headlines full of Brexit, the Loan Charge 2019 review, and defecting MPs, it would seem that the government have some rather pressing matters to deal with.
Whatever emerges out of those issues, and from the now-imminent consultation on IR35 reform, three weeks today will arrive no matter what and the chancellor will still rise to his feet. So, asks Helen Christopher, operations director at contractor accountancy firm Orange Genie, what should the UK’s contractor community expect?
Setting the tone
Spring Statement 2019 will begin at 12.30pm and last just 20 minutes (but note Mr Hammond has ‘form’ with not sticking to his promised timeframes at Spring Statement). So whatever the chancellor announces, the devil will be in the detail that follows. As usual!
A shake up of public finances is widely expected this year following a Spending Review after nine years of austerity. The date for the spending review has not been set, but it could turn out to be fundamental in the future productivity and success of the UK economy, depending on the final outcome of Brexit. But at this Spring Statement, it will be the chancellor’s opportunity to share with us the current state of the UK economy and update us on progress since his Autumn Budget.
While no major changes or rises in taxation are expected at this time, we are not ruling anything out. Mr Hammond left the door open in his 2018 Budget to upgrade the Spring Statement to a full budget should we be faced with a no-deal Brexit. As the days countdown to March 29th – when Britain is scheduled to leave the EU, this has to be a real possibility.
At Autumn Budget 2018, the chancellor announced changes to IR35 rules in the private sector and promised a consultation in early 2019. To date we have yet to see this and what most contractors, agencies and professionals now want to see is the detail of the proposed changes, which are due to take effect from April 2020. Whether the chancellor specifically mentions these changes in his speech remains to be seen (although contractor-specific policies are often omitted). Either way, we are expecting the finer details very soon.
Our best guess at the moment is that the IR35 changes in the private sector will reflect those made in the public sector from April 2017, bar some small improvements the government has committed to try to make. Given that all interested parties are aware of the impact these changes had on the contracting market, contractors should be better prepared to discuss these issues with agencies and end-clients.
Right now, recruitment agencies and end-clients are concerned about the extension of IR35 reform in the shape of the off-payroll rules. If reform gives them responsibility for assessing contractors’ IR35 status, an incorrect ‘outside IR35’ assessment will carry a risk for them, while ‘inside’ decisions will create extra work and increase their costs. It’s therefore very much in their interests to make sure your status is assessed correctly.
Assuming you expect to be working for the same agency and/or client in April 2020, it’s a good idea to speak to them now about how they intend to handle IR35 reform, if it happens. Speaking to them early will allow you to address any concerns they have and make sure they understand your position if and when they have to assess your IR35 status.
It’s important that contractors also remain honest about their situations. A clear ‘outside’ IR35 assessment is your cue to gather an evidence file to support your position, whereas a clear ‘inside’ assessment may signal the need to consider other options ahead of any announced changes. For many public sector contractors found to be ‘inside IR35,’ the most beneficial solution was employment through an umbrella company. Generally-speaking though, it was ‘horses for courses,’ which is why we’ll be on stand-by post-Spring Statement to guide you through the IR35 reform picture, and what future it seems to paint for you, in a webinar exclusively for ContractorUK readers.
Making Tax Digital
With changes to VAT on leaving the EU still a cause of major uncertainly for tiny businesses including contractor companies, the April 2019 planned launch date of Making Tax Digital has received much criticism. Many commentators have requested a delay but with much preparation in the background from software companies and HMRC alike, the calls for MTD to be delayed may be a little too late.
The government has pledged to cut corporation tax to 17% by 2020. Although we don’t expect any announcement in Spring Statement 2019 to change this, we can envisage that a no-deal Brexit may lead to an acceleration of the reduction.
We have already seen a number of established brands announce intentions to move production from the UK (or their HQ in the case of engineering firm Dyson), and the government will be keen to signal that the UK is still ‘open for business.’ It is even possible that a temporary reduction below the desired 17% rate be introduced, to ensure business remain not just attracted to the UK, but actively incentivised towards it.
More as a refresher for contractors than anything else, given that we are not expecting any changes to dividends on March 13th, the tax-free dividend allowance in the 2019-20 tax year will remain at £2,000, and the tax rates for each dividend band will also be unchanged.
However, the income tax bands will change and the tax-free personal allowance will increase to £12,500, with the higher rate band now starting at £50,001. Anything over £150,000 will be taxed at an additional rate. Which rate you pay will depend on your overall income and capital gains in 2019/20.
- If you earn less than £12,500, this falls within the personal allowance and you won’t pay any tax.
- Income between £12,501 and £50,000 is in the basic-rate tax bracket
- Income between £50,001 and £150,000 is in the higher-rate tax bracket
- Income above £150,001 is in the additional rate tax bracket.
Tax Avoidance Measures (incl. Loan Charge 2019)
We fully expect the government to remain focused on anti-avoidance measures. The Spring Statement would be an ideal opportunity for the chancellor to comment on the current situation with regard to the controversial Loan Charge, due to be introduced from April 2019.
The Loan Charge grants HMRC licence to punish contractors retrospectively for loan agreements dating back to 1999. The scheme applies a charge on any part of a loan outstanding at April 5th 2019. Currently the Loan Charge is facing opposition both from MPs and industry groups -- legally.
In fact, a Judicial Review into the lawfulness of the charge has been launched but no High Court judgment is expected before September 2019. And with appeals through the Court of Appeal and the Supreme Court expected, it could take several years before a conclusive judgment is reached.
MPs are currently calling for the loan charge legislation to be revised. They want it applied only to loans taken out after the Finance Act 2017 received Royal Assent, citing a number of concerns, including the unfairness of retrospective tax, that the charge is likely to cause financial distress to many and that HMRC should pursue the organisations that established these illegal schemes rather than the individuals who used them in good faith. Will the chancellor listen to his many colleagues including those on the Loan Charge APPG? Or will he stick to the stance he outlined to the Treasury Select Committee? A stance he subsequently was forced to all but apologise for.
Should a challenge prove successful and the Loan Charge is overturned, HMRC would be unable to impose charges on individuals for years where no enquiry has been opened. This is especially significant, given how few enquiries were opened into the use of these schemes.
While we are not expecting big announcements in the Spring Statement, contractors would be best-advised to prepare for the unexpected. Right now there are some significant issues taking up a lot of the government’s focus, but we can never be sure that this will mean they are too busy on other fronts to leave contractors alone.
Having announced intended reform for private sector contractors in April 2020, I think it is highly unlikely that they will backtrack and cancel or postpone their plans. What is going to be interesting is to see if they have listened to any lobbying and made any amendments to the current public sector approach. Contractors would be wise to take heed of the detail that is published once we have the long awaited consultation and to seek professional advice with regards to their individual situation.