Contractors embrace Budget 2020 keeping Entrepreneurs’ Relief, as IR35 delay hopes get killed off
A reduced but not removed Entrepreneurs’ Relief under today’s Budget 2020 is being seen as chancellor Rishi Sunak’s attempt to sweeten the bitter pill of IR35 reform going ahead.
In fact, with the April 6th IR35 changes only quietly confirmed in his full report (at 2.178), experts say Mr Sunak reducing ER’s lifetime limit to £1m is ‘fair,’ ‘positive’ even ‘contractor-friendly.’
“We need to look at the fine print of this relief resetting to where it was in 2008, but I don’t think PSCs will be adversely affected too much,” says Leila Ghazzali of WTT Consulting.
“The PSCs I deal with usually come in between £100,000 and £500,000. In this sense, the chancellor’s been contractor-friendly. [Less so] for those who want a business in the future.”
Referring to the ER cut at Budget chapter 2.199, accountancy firm DNS Associates said: “We fully agree that dropping down the lifetime limit from £10m to £1m is fair.
“Although it’s a sizeable drop, it will not go against too many small entrepreneurs. The policy aim is retained too, as small, single-person traders will still have some incentive.”
Patrick Gribben, head of client services at Intouch Accounting, is more cautious:
“It is worth remembering that the £1m lifetime limit is a lifetime limit.
“So if a contractor has moved between contingent working and other forms, including 9-to-5 PAYE several times, over a career spanning decades, it is possible they could be affected.”
'Most contractors won't be disadvantaged'
Overall though, Mr Gribben agrees that the majority of typical limited company contractors “will not be disadvantaged” by the chancellor’s downward revision to Entrepreneurs’ Relief.
Outside of contractor accounting circles, there is palpable relief that Mr Sunak didn’t remove the relief completely, partly because of what PSCs will have to contend with already.
“That ER will be reformed rather than scrapped is positive news, but it doesn’t change…the fact that IR35 reform will go ahead, confirming contractors’ worst fears,” says Qdos.
'So the IR35 chaos continues'
Another status specialist Bauer & Cottrell said: “It’s good for contractors that ER will not be abolished altogether. And we were encouraged when the chancellor’s speech started.
“The support [for businesses from Mr Sunak] for dealing with the Coronavirus was an opportunity to delay the off-payroll rules. But it’s not to be, so the chaos continues.”
And chaos ‘on the ground’ – in workplaces, is correct, hints James Poyser of inniAccounts.
“There's plenty of good news [in today’s Budget] for wider business - more cash for R&D and big investments in transport and digital infrastructure.
“But sadly, IR35 has not been delayed. And there's a paradox: these large investments are project-based, and need to be delivered by a flexible expert workforce and small consultancy firms who can roll on and off projects as needed.
“Yet even before April, the disastrous IR35 reforms have already decimated [this flexible] workforce,” he said.
'Move on, accept it and work'
Reflecting further on the practical upshot of the Budget not delaying the off-payroll framework for such workers, IR35 advisory ReLegal Consulting said:
“We think over the next 12 months, the so-called ‘Chapter 10 companies’ will start to reintroduce outside IR35 contracts but it is likely to be for the highly skilled end of the market.
“Until then,” added the advisory’s Rebecca Seeley Harris, “my advice to contractors is to move on, accept it and work with those companies that are carrying out thorough assessments.”
The Freelancer & Contractor Services Association is another in the contractor sector which also offers guidance to workers affected by chancellor announcements. But its boss is still getting over the chancellor’s insult.
“I am shocked that Rishi Sunak made absolutely no mention of IR35 or off-payroll in his budget speech, except perhaps veiled in his comment of dealing with tax avoidance in order to support the NHS,” says FCSA’s CEO Julia Kermode.
“The omission is insulting to say the least, not just to the many thousands of professional contractors who will be affected, but also to the Lords and many MPs that have raised their concerns to the government.”
'Smooth and succesful implementation'
In the Budget red book, the nearest that HMT comes to acknowledging Ms Kermode’s concerns is when it talks of the 'soft-landing' and other revisions to support the April rules’ "smooth and successful implementation."
It adds: “The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.”
Later in the full Budget 2020 report, and potentially concerning affected contractors, the government says it will invest in new “compliance officers” and technology for HMRC, with the aim of raising £4.4billion in additional tax revenue by 2024-25.
'Out of the frying pan into the fire'
One of the Revenue’s former inspectors Carolyn Walsh, now managing director of Andraste Accounting, says contractors could actually benefit from HMRC’s boost by being protected:
“HMRC’s recruitment drive and extra funding should actually mean fewer contractors will go out of the frying pan into the fire if, say, they accidentally use a tax avoidance scheme touted on the back of IR35 reform.”
On the latter, another ex-tax official Tom Wallace, WTT Consulting’s head of tax said: “Clearly any hope of IR35 reform being postponed or scrapped prior to 6 April is all but dead in the water.
“Contractors, intermediaries, and end clients alike, therefore, need to be prepared for the changes and ensure they understand how they will affect them.
“Those that have not had a status determination for any contract that will be paid post-April 6 will now need to discuss with their end-client how this will be done and more importantly, when.”