Medium-Term Fiscal Plan on October 31: Contractors' hopes pinned on repeal of IR35 reform remaining
A so-called Medium-Term Fiscal Plan with potential implications for contractors is to be unveiled on Monday October 31st.
The plan will fall five weeks after Mini-Budget 2022, at which the chancellor vowed to axe the 45p top rate of tax -- only for him to renege on it shortly after.
Contractors and their advisers therefore hope that Kwasi Kwarteng won’t now use his next statement on Halloween to U-turn another vow he made on September 23rd -- the repeal of IR35 reform.
'IR35 decisions reverting to individuals'
Since the 45p rate was reconfirmed contractor accountants, like Acumenica’s Alan Broome and Workwell’s Chris James, have reassured that ‘there’s nothing to suggest a [similar] U-turn on IR35 reform’s repeal.’
Advisers even closer to IR35, like Brookson Legal’s Matt Fryer and WTT Consulting’s Graham Webber, have agreed, with the latter saying that the 45p rate staying is sensible, just as “IR35 decisions reverting to individuals” is sensible too.
Ryan Dawson, IR35 project manager for Kingsbridge echoed: “While the pressures on the economy and unstable nature of government continue, there is nothing to suggest a U-turn on the repeal of IR35 [reform].
“Passing the responsibility of status back to contractors is the right thing to do, given that businesses are plagued with IR35 issues such as HMRC's failed CEST tool; compliance and cost and resource, which have culminated into a talent shortage that is hindering growth.”
'Hope the chancellor sticks to his promise'
Asked yesterday about the incoming Medium-Term Fiscal Plan, an IR35 contract review firm made clear that it knows the context is U-turns.
“We hope the chancellor sticks to his promise that IR35 reform will be repealed this coming April,” began the firm, Qdos, in a statement to ContractorUK.
“While the government has U-turned on plans to scrap the 45p income tax rate, we’re yet to hear rumours of a rethink of the IR35 reform repeal – which is good news all round.”
'Contractors need clarity on IR35 reform's repeal'
But the firm’s CEO is hopeful that more than just keeping his word, the chancellor will order HM Treasury to publish guidance on the off-payroll rules getting revoked.
“When it comes to IR35, contractors and other parties in the supply chain need clarity regarding the reversal of reform,” says Qdos’s chief executive Seb Maley.
“Understandably, there is some uncertainty and some people are sceptical that the repeal will materialise. So the sooner the government publishes further guidance, the better.”
'Detail on how exactly IR35 reforms will be unpicked'
In a statement to ContractorUK, HMRC said it would “support contractors to understand what they need to do from April 2023, and help them to get their tax right.”
Andy Chamberlain, policy director at IPSE is among those hoping for more from HMRC or HMT on October 31st.
“We would be very interested to see any further detail on how exactly the IR35 reforms will be unpicked from the statute,” Mr Chamberlain said yesterday to ContractorUK.
And he might be the policy director for the Association of Independent Professionals and the Self-Employed (IPSE), but even he concedes what the contractor sector wants probably needs to wait.
'Steadying the ship'
“IPSE would welcome measures that help to settle economic uncertainty,” said Mr Chamberlain, alluding to the big picture.
“So that may well mean [the chancellor specifically] not announcing new, eye-catching fiscal policies -- and instead focusing on steadying the ship.”
Julia Kermode, founder of IWORK also expects the fiscal plan to act as a ballast.
“Personally I think it is unlikely there will be many wild financial policies announced,” she says.
“But then I thought that last time [at the Mini-Budget], and we got a planned repeal of [the] off-payroll rules!”
'Increasing pressure on chancellor Kwarteng'
Despite appearing in front of his fellow MPs yesterday for an hour-long grilling about his Mini-Budget (which for containing unfunded tax cuts of £45billion has caused widespread economic tremors), Mr Kwarteng has not explained why his fiscal plan has been brought forward.
Of her observation, Ms Kermode reflected last night to ContractorUK: “No reason has been given [by him for] moving this autumn Budget or ‘Medium-Term Fiscal Plan’ forward by three weeks.
“But it’s likely due to the increasing pressure on him as chancellor to give some concrete reassurances about his previous announcements, and his growth plan.”
'Stand by your beds'
At Qdos, Mr Maley believes measures on October 31st to stabilise the macro economy while not directly impacting contracting, should have a positive trickle-down effect on independent workers.
He explained: “The chancellor must tackle rising interest rates and, in turn, the mortgage market.
“Whatever Mr Kwarteng has in store [on October 31st],” added IWORK’s Ms Kermode, “stand by your beds for more financial 'fun.'”
“But I'm not expecting a U-turn on his planned repeal of the off-payroll legislation. That said, who knows. His policies so far have been surprising.”
'Truss's goverment ignored tax policy'
Since his Mini-Budget -- yesterday heavily criticised by the IMF and then condemned by the BoE for triggering turmoil “way beyond” its contingency plans, chancellor Kwarteng has been called to recall it entirely, or at least reverse its most expensive parts.
Should such a recall cover IR35 reform’s repeal, there is a narrative that the government could use to explain why revoking the off-payroll rules needs reversing, according to VIQU managing director Matt Collingwood.
“[The government in] Tax Consultation Framework cite a 5-step process for tax changes, including ‘one formal, written, public consultation in areas of significant reform.’”
“[But] Liz Truss’ government ignored this framework, undertaking a substantial change without even consulting HMRC,” he wrote.
Regardless of whether that justification gets used on October 31, Mr Collingwood believes the chancellor’s move to repeal the off-payroll rules “caught HMRC off-guard” indicating that potentially as early as the fiscal plan being hatched, the tax authority “will become even more militant”.