Contractor sector deems Sunak’s Summer Economic Statement 2020 as largely anodyne
A series of Budget-style announcements have been delivered by Rishi Sunk at his Summer Economic Statement 2020 with most being anodyne for contractors, except in three key areas.
First, the chancellor says he will “reward employers” (including limited companies) who ‘bring furloughed staff back’ by giving the employer a bonus of £1,000 for each returnee.
Second, Mr Sunak said he will immediately increase the threshold at which stamp duty becomes payable to £500,000, in a boost for contractors and other workers buying homes.
Third, and less affecting of contractors as a whole but with potential implications for such workers, partly depending on sector, there is HMT’s casually-titled ‘Rishi’s Plan for Jobs.’
It includes the new job retention bonus scheme, open to returnees on £520-plus a month who remain “continuously employed” until January. But the chancellor's plan excludes new detail on IR35.
Yet the off-payroll rules are mentioned in ‘Rishi’s plan.’ At chapter 3.29 and seeming to repeat a statement it was attacked for as it implied no steps need taking now, HMT says:
“The government has delayed reform to the off-payroll working rules (commonly known as IR35) in the private and third sectors from April 2020 to April 2021.
“This means that businesses and individuals do not need to implement and adjust to the reform while dealing with the economic impact of COVID-19.”
'New normal due to covid does include IR35 prep'
Stuart Marquis, who advises on compliance for Liberty Bishop, believes implementation and adjustment is exactly what all parties in the contractual chain of PSCs need to do. And now.
“Due to MPs having voted again any further delay to the off-payroll reforms…we now know that part of the ‘new normal’ for the contracting world will be preparing for the off-payroll reforms”, he says.
Qdos, an IR35 contract reviewer, says adjustments and implementation are what it’s seeing too, as covid-hit engagers and PSCs move to get reform-ready, contrary to HMT’s claim:
“With private changes on the horizon we’re ramping up our activities,” the advisory says. “We’ve now helped over 2,200 hiring organisations and recruiters…[and] 9,000 contractors.”
'Covid's economic impact likely to last several years'
Patrick Gribben, client services head at Intouch Accounting, also takes issue with officialdom suggesting it is sparing companies and contractors from having to act during a pandemic.
“If business do not need to implement the changes while dealing with the economic impact of Covid-19, then that suggests that the economic impact of Covid-19 won't last past January 2021.
“And that would still only give business two months to implement and adjust!
“The economic impact of Covid-19 is likely to last several years. So does that mean then the roll out of reform to IR35 in the private sector will be delayed for several years?”
'Furlough bonus, a nice gesture'
For limited company contractors on the accountancy firm’s books, Gribben implied that the “Job Retention Bonus Scheme” will equally raise as many questions as it answers.
“The impact of this on the average PSC very much depends on whether the limited company has retained funds to be able to pay salaries for November, December and January,” he advises.
“If they have retained funds then they should be able to claim the £1,000 grant. This of course still means that employing a director who may not be working will cost that PSC in the region of £1,375 across that three-month period. But still, it's a nice gesture.”
'Sunak's incentives sound good, but...'
Another accountant specialising in contractor taxation, Graham Jenner, sees it similarly – a gesture, even a headline-winner for the chancellor, but little more.
“Like a lot of these incentives [from Mr Sunak], it sounds good, but when you look at the amounts involved it isn’t the driving force that will make someone go out and get more work.
“Of course, it is aimed at incentivising employers to bring people back to work that they wouldn’t otherwise,” he said. “But £1,000 will make the difference in only a few situations.”
'Dividends haven't counted'
Asked whether those few situations would include tiny incorporated business-owners, where £1,000 could represent a whole new contract, the Jenner & Co boss still wasn’t so sure.
“The £1,000 won’t be enough to get PSCs back working,” he says. “They already want to be back working if they can, since their income under furlough is significantly lower than previously.
“Giving up the furlough pay grant vs the £1,000 Job Retention Bonus makes little difference.
“It appears that it will benefit those who happen to get work and so take themselves off furlough – and they may see that as only just, given that the dividends haven’t counted towards the furlough grant.”
'Bonus may soften the impact'
Sounding more welcoming of the bolt-on to the CJRS, albeit one which is designed to wean workers off it, is Chris James, director of accounting services at JSA Group.
“The £1,000 bonus for furlough return may soften the impact of the end of the CJRS scheme in October,” he says.
“But it can’t mask the problem that many employers will find as autumn approaches – if there isn’t sufficient work for staff, difficult decisions will still need to be made.
“A £1,000 bonus can’t make a redundant role viable, however much an employer doesn’t want to find themselves in that position.”
'Stunningly rapid about-turn'
Before today’s economic update by the chancellor, another policy related to the Coronavirus Job Retention Scheme was clarified by HMT. But only after it was muddled.
Markel Tax’s head of employment solution Thomas Dalby explained: “Earlier this week, HMRC announced that Covid-19 tests provided by employers would give rise to a tax and NIC charge either as a benefit in kind or as additional pay.
“This morning in a stunningly rapid about-turn, they have removed that guidance from the tax and Covid-19 fact sheet. The position now is that Covid-19 Antigen tests will not give rise to any additional tax or NIC.”
'IR35 reform review would have been more fitting'
However, it is a U-turn on IR35 which most contractors would have preferred.
“It would be far more in keeping with ‘creating and protecting jobs’ if the government moved to delay and review the changes to IR35 in the private sector,” said Intouch’s Mr Gribben, referring to the phrases Mr Sunak used in his speech.
The contractor accountant added: “The reform is likely to see more contractors out of work and more projects delivered by teams and resource outside the UK, and that can only mean that the government sees reduced tax take as a result.”
“Most concerning is today’s green-light for everyone to do absolutely nothing about the new IR35 rules until [the pandemic is over],” agrees Kate Cottrell, an IR35 specialist.
“It is all very well using terms such as ‘implement’ and ‘adjust’ but what happened to all the HMRC and HMT publications shouting about the need to ‘prepare now’? Everyone has to consider the new rules now and plan accordingly.”
Asked why time is of the essence, the ex-tax inspector who now runs her own status advisory said many contracts they are reviewing are already set to extend beyond the tax year.
“It would be reckless to review these and say ‘all is fine,’ without full and proper consideration of the new rules and how the IR35 status can change,” the co-founder of Bauer & Cottrell says.
“There seems to be no comprehension [from the government] for the need for contractors to have certainty on what their pay rates will be, and no consideration for the costs to business of the implementation of the new rules.”
And it’s implementation that will come to concern PSCs, hints Mr Marquis, at least in terms of how HMRC will implement the framework from April 2021.
“Postponement [due to covid-19] was absolutely the right decision given the circumstances.
“But it was one that would have almost certainly frustrated HMRC, and will no-doubt harden their stance towards non-compliance when the reforms eventually do come into force next year,” he says.
'Don't rest on your IR35 laurels'
David Harmer, associate director of Markel’s contractor solutions unit also reflected to ContractorUK this afternoon: “Businesses should not rest on their laurels [in relation to the incoming off-payroll rules].
“The harsh reality is that no one knows how long the economic impact of Covid-19 will last, and we believe many of our clients will be feeling its impact well into April 2021 and beyond.”
He added: “While companies do not have to comply with legislative requirements yet they must start planning for the reforms now – if they wait for this ‘pandemic’ to be over, it will be too late.”
'Stamp duty stimulus is wishful thinking'
Fortunately for those contractors who want to purchase a property this year, there’s no such wait to take advantage of the chancellor’s stamp duty holiday, as it takes effect immediately.
“In theory, the holiday means that any savings a contractor buying a home has set aside for stamp duty can put towards their deposit,” says mortgage advisory Freelancer Financials.
“But personally,” caveats the advisory’s founder John Yerou, “I don’t think it will stimulate the housing market.
“The issues with the housing market and lending are not going to be resolved by a stamp duty holiday. It’s wishful thinking. The only segment of the market it will stimulate is those looking to downsize.”
However it is not the only stimulus that Mr Sunak announced. Alongside more funding for apprenticeships, job centres and career coaching, he said he will cut VAT for six months.
The cut is confined to the tourism and hospitality sector; means a new 5% rate on food, accommodation and attractions, and will apply from next week until January 12th.
The chancellor also announced a “never been tried before” policy called ‘Eat-Out-to-Help-Out,’ under which participating restaurants can offer patrons up to 50% off, up to a maximum discount of £10, Monday to Wednesday.
It’s an announcement that might not go down too well in a heavily-taxed contractor sector, which was hoping for targeted relief or removal.
IR35 expert Kate Cottrell said: “Rather than the chancellor giving everyone a cheap meal for a few days Monday to Wednesday – oh and many eateries are closed on Mondays [because of covid], we would really like to have seen ‘Off-Payroll-Out-to-Help-Out.’”