Spring Statement 2022: ‘Quiet’ for contractors despite take-home pay reverberations for all

A threadbare Spring Statement 2022 for contractors ranks a £3,000 rise in the NI threshold; a 5p fuel duty cut, and a 1p income tax cut as the few but top potential take-home pay boosters.

So the chancellor made no move to extend IR35 reform to small companies, gave no new detail on the Single Enforcement Body, and said the 1.25% hike on NI and dividends would go ahead.

“Other than Rishi Sunak talking in his speech of ‘leaving people with more of their own money,’ it was a pretty quiet Spring Statement for contractors,” says Genie Accountancy's Helen Christopher.

“No mention of IR35, and no reference to applying 2021’s IR35 reform to small companies. So in that sense, and for some PSCs especially, good news at least. But very little else.”

'Nothing much for contractors in this Spring Statement'

Status expert Kate Cottrell, who predicted Mr Sunak would not extend the new off-payroll rules to small companies this year, agrees that the chancellor's measures largely overlook temporary professionals.

“There is nothing much for contractors in this Spring Statement,” the Bauer & Cottrell co-founder began in a statement.

“However, a key point for the contracting industry as a whole hides at chapter 3.15.

“There, the chancellor offers additional investment for compliance resource at HMRC; some £161million over the next five years. Contractors be on guard -- that is a lot of investigations.”

'No Single Enforcement Body, rather £161m in tax enforcement'

A former tax inspector Carolyn Walsh said: “Sunak didn’t mention the Single Enforcement Body to regulate umbrellas. But he did hint at tax enforcement against all companies.

“Just look at the huge increase in money going to HMRC to spend on compliance in the coming years…That's a promise that the government isn't backing down on.”

Seb Maley runs IR35 contract reviews for contractors trying to keep the HMRC rule at bay.

'More than 1,000 tax investgiations a day'

Boss at Qdos, he says HMRC is allocating more resources to tax investigations already.

“The number of [tax investigations] jumped by nine per cent in the six months to Dec 2021, from 126,000 to 137,000…this is the equivalent of 1,062 tax investigations daily.

Mr Maley added: “But which areas of tax might HMRC be focusing on in 2022? [Well], IR35 – [due to] the end of the soft-landing this April…[and] employment status [overall].”

'Measures don't provide much relief for IR35-hit contractors using umbrella companies'

Ominously, the direction of travel from the chancellor is the same, according to Sid Agarwal, tax director at contractor accountancy firm DNS Accountants.

“The Spring Statement measures announced today do not provide much relief for contractors if they have had to move to umbrella [company working] because of the IR35 changes.

“Such contractors will be adversely impacted by the increase in National Insurance rates for 2022/23, and the Health and Social Care levy from the year after.”

'Umbrella contractors get £267 extra in their pocket'

More positively, added Mr Agarwal, the chancellor announcing an alignment of the National Insurance primary threshold with the personal tax allowance from July 2022 “will provide some relief.”

The accountant explained his assessment: “The 30million people who the chancellor says are set to benefit will include the typical umbrella worker, as it should leave them with £267 more in their pocket in 2022/23.”

Lucy Smith, who runs umbrella company Clarity Umbrella agrees that contractors using her type of business should financially benefit.

Yet only marginally and not immediately.

She said: “It’s a comfort albeit a small one that from July, the National Insurance threshold will jump from £9,880 to £12,750. So brolly contractors may benefit from a small reprieve.

“But before that in April, umbrella workers face a ‘double-whammy’ thanks to the 1.25 percentage points rise in NICs, ahead of the same hike via the Health & Social Care Levy.”

'Double-whammy, still'

Parasol, a larger umbrella company, characterised the chancellor green-lighting the National Insurance increase ,while adjusting the thresholds, in almost the same way.

“Umbrella employees could [still] be impacted by a ‘double-whammy’ of NI rises [under today’s Spring Statement],” began Parasol’s head of payroll Joanne Harris.

“[This is because] both employer and employee National Insurance contributions are increasing, so if the assignment rate agreed with the agency or end-hirer is not increased to account for the rising employment costs umbrella employees will see an overall NI increase of 2.5%, resulting in a reduction in total take-home pay.

“The chancellor’s surprise announcement of an increase in the National Insurance threshold to £12,570 was welcome news and will help to offset the rise somewhat, although there was no increase in the thresholds for employer NI.”

'NICs changes will hit take-home pay, no matter what'

Ahead of an analysis by her tomorrow morning, exclusively for ContractorUK, on what the total package of NICs revisions means – and not just for umbrella contractors but for PSC contractors too, Genie Accountancy’s Ms Christopher summed up:

“No matter how a worker earns their income, these NI changes will affect their take-home.”

Sounding similarly focussed on the bottom line for his contractor candidates is Paul Farrer, founder and chair of Aspire, a recruitment agency.

'Could make a very big difference - collectively'

Given the absence of contractor-specific measures, the recruitment boss signalled contractors might need to look at the more broad-brush tax measures which the chancellor announced (underpinned by Mr Sunak’s new 12-page Tax Plan).

“Raising the national insurance threshold, cutting fuel duty and a 1% drop in income tax by the end of parliament could collectively make a very big difference to millions of people and businesses,” Mr Farrer said.

He added: "The government’s plan to boost investment, innovation and business growth could also prove to be a shrewd move in creating jobs. As could changes to the Employment Allowance, which will make it cheaper for employers to hire.”

'Plight of contractors continues to go ignored'

But according to DNS, it is changes to the Employment Allowance previously announced and already in force, that speak volumes about where the government’s thinking really is.

“The increase in Employment Allowance [to £5,000 from April ] simply isn’t relevant for the majority of contractor companies as they will be single-director companies without additional employees [who have been previously made ineligible by the government].”

“So the government continues to ignore the plight of contractors who have been heavily hit by tax rises and perverse legislative changes," the accountancy firm said.

"And now there’s nothing new from the chancellor in his 'Blue Book' to really support them – only tax rises and if caught by IR35, no employment rights either.”

'A blow to those who work for themselves'

The Association of Independent Professionals and the Self-Employed strongly suggested contractors will need to look very deep into Spring Statement to find any benefits, and even then, they may still be disappointed.

IPSE’s policy director Andy Chamberlain said: “The chancellor’s decision, confirmed today, to implement the increases to dividend tax and National Insurance is a blow to those who work for themselves.

“[So] overall, today’s statement will do little to reassure self-employed households, already struggling as a result of existing government policies such as IR35, and now facing historic inflationary pressures.”

'Slip through the cracks'

Despite backing Mr Sunak for announcing a 1% income tax cut effective in 2024, off-payroll adviser Mr Maley says that by then, for some contractor companies, “it could be too late.”

“What’s more,” he continued, “this headline-grabbing, [income-tax-cutting] measure will do little for limited company owners who slip through the cracks. Just as they did during the pandemic.”

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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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