Budget 2021: Rishi Sunak omits IR35, even as HMRC eyes £1.5billion extra from off-payroll reform in 2024-26

Rishi Sunak broke with tradition by not uttering ‘IR35’ once at today’s Budget 2021, unlike almost all Spring and Autumn fiscal statements by chancellors of late.

In what the contractor sector says is a tacit admission that the new off-payroll rules will apply from April 6th, Mr Sunak did not mention IR35, neither in his speech nor in his Red Book.

It means that barring an 11th hour U-turn at a new fiscal event – ‘tax day’ on March 23rd – private sector IR35 reform will officially bite in a little over four weeks’ time.

And while advisers to limited companies sound pleased a ‘one-client-only-tax’ did not emerge, most have next to no hope that the 23rd will see a backtrack on IR35 reform.

'Odd'

“Unsurprisingly there was no mention of IR35 in the chancellor’s Budget speech today, further confirming that what little hope there was for a postponement has now completely disappeared,” says Clarke Bowles of Parasol.

“The government appears not to recognise the threat of these imminent reforms on the contracting industry, which is a further blow for limited company contractors at what is already a challenging time for all small businesses due to the ongoing pandemic.”

Matt Fryer of Brookson Legal deems it “odd” of the chancellor to make “no mention of [IR35 reform] whatsoever”, but he said it implies Mr Sunak sees the April rules as ‘cut and dried.’

'Here to stay'

“This is a clear indication that government regards this reform as done and dusted with the legislation already being finalised,” the legal adviser told ContractorUK.

“I would be surprised if IR35 was mentioned on ‘tax day’. I think the rules are here to stay and government will [use the 23rd to]  move on to other longer term reforms.”

Chris James of JSA Services signalled to ContractorUK he agrees, saying Budget 2021 is “disappointing news for anyone pinning their hopes on another delay,” following the first IR35 reform delay in March.

'Blindingly pressing ahead'

“Unfortunately the government is committed to blindingly pressing ahead,” SJD Accountancy’s Joanne Harris echoed in a statement to ContractorUK. “And this document proves it.”

Harris was pointing to ‘Technical Changes to make sure off-payroll working legislation operates as intended,' a new HMRC document released alongside Budget 2021.

“This [document contains] a welcome and expected clarification,” begins Brookson’s Mr Fryer. “It clears up the point of confusion that surfaced a few months ago where the new legislation inadvertently caught umbrella companies within the off-payroll rules

“This amendment now ensures that umbrella companies are outside of scope -- as intended at policy level, and the new rules only apply where the worker has an interest, such as owning shares, in the company that pays them.”

'Banks and others moved away from PSC contracting'

Mr Fryer also said that the new HMRC policy paper was a “further indicator” that the new off-payroll rules will apply from April 6th 2021, “with no further deferral.”

“[One has] to look deeply into the Budget documents to find ‘Off-Payroll’, but there it is -- in a costings spreadsheet, showing implementation in April 2021,” added JSA’s Mr James.

“[It was] probably inevitable [there would be no second 12-month postponement], given that another delay would mostly likely prompt some of the banks and others that moved away from PSC contracting on a large scale in early 2020, to start to reverse those decisions.”

'£700million extra in total from IR35 reform, including a new £1.5bn in 2024-26'

Meanwhile Bauer & Cottrell unearthed a third new HMRC document showing the off-payroll rules to be getting tweaks behind the scenes – this time in terms of how much they will raise.

“There is a new policy paper from the Revenue, Off-Payroll Working Rules from April 2021, and this document amends the exchequer impact statement,” said the firm’s Kate Cottrell.

A former tax inspector, Cottrell was referring to the new IR35 figures (see Table 1 below) showing that not only does HMRC expect to make up the £740million fall in projected revenue, but that it will actually trump its £3.1billion total yield from the off-payroll rules by £700million.

More crucially, whereas the November projection at Spending Review 2020 (see Table 1 below) showed the tax years 2024/25 would leave HMT with a negative yield of £20million, and nil impact in 2025/26, the IR35 reforms over both tax years are now forecast to generate £1.5billion.

'Not evidence of compliance'

But Seb Maley, chief executive of Qdos isn’t a fan of the taxman’s number work.

“The [HMRC-provided] analysis of revenue raised by IR35 reform is by no means evidence of improved compliance. 

“While £250m in the first year and £275m in the second might be the amount of tax raised, it doesn’t take into account the number of contractors forced onto the payroll and wrongly placed inside IR35 which has contributed to this.”

'No choice but to work outside IR35'

Other new numbers from HMRC also aren’t worthy of much scrutiny, he said, explaining:

“The worry is that HMRC claims just 180,000 people will be impacted by the reform. This is optimistic.

“Clearly, the tax office hasn't taken into account the thousands of genuine contractors who have been given no choice but to work inside IR35 or forced into umbrella working by their clients as a result of the reform.”

'IR35 compliance on the target list'

Pointing to some other HMRC numbers which also failed to make the chancellor’s speech is Chris Mattingly, CEO at IR35 Navigator.

He told ContractorUK: “IR35 reforms are still going ahead -- that was always a given. There is one small [related] take away though -- the government will invest a further £180million in 2021-22 in additional resources and new technology that will be used to recruit additional compliance staff to tackle non-compliance and tax avoidance.”

“Clearly IR35 compliance is on the target list, so this should serve as a reminder for anyone involved in the supply or use of limited company contractors to secure their supply chains and make sure that all future engagements are properly assessed.”

'Active enforcement by the taxman'

Crawford Temple of compliance advisory Professional Passport reflected: “Off-Payroll legislation will take effect in the private sector in April, so it is more pressing than ever to limit the access to market for non-compliant providers.

“Active enforcement [by HMRC] is likely to provide the greatest return to the Treasury and also helps support the compliant providers and create a more level playing field.”

Table 1

Off-payroll working rules in the private sector 2020/2021 (£m) 2021/2022 (£m) 2022/2023 (£m) 2023/2024 (£m) 2024/2025 (£m) 2025/2026 (£m) Total (£m)
Budget 2018 projections 1,165 595 635 725 - - 3,120
Spending Review 2020 revised projections 75 1,000 625 700 - 20 - 2,380
Difference between Budget 2018 and Spending Review 2020 projections - 1,090 405 - 10 - 25 - 20 - - 740
Budget 2021 projections 30 1,020 590 650 725 805 3,820
Difference between Budget 2018 and Budget 2021 projections - 1,135 425 - 45 - 75 725 805 700

Editor’s Note: Further reporting on Budget 2021’s impact on the contractor sector will follow on ContractorUK tomorrow morning.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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