New IR35 off-payroll review 'would be worst Autumn Statement outcome for contractors'
The worst thing that chancellor Jeremy Hunt could do for the UK contractor sector at Thursday’s Autumn Statement 2022 is announce an IR35 review.
Kate Cottrell, an ex-tax officer who now specialises in status says the Intermediaries legislation has been reviewed so many times, that another would be a “waste of time.”
Moreover, the flaws in both the rules and the 2017/2021 reforms have been laid bare already, by the OTS; the PAC, peers, and the NAO, Cottrell says today exclusively on ContractorUK.
'No surprises please chancellor'
By contrast, the best thing Mr Hunt could do is unveil a ‘no-surprises-Budget,’ she says, even if the feared halving in the dividend allowance and a rise in dividend rates must go ahead.
The chancellor is also expected to freeze income tax allowances until 2028; freeze the VAT threshold, and reform Capital Gains Tax potentially making closing a company more taxing.
But by hoping beyond hope that IR35 isn’t reviewed again (it is her first of six wishes to Mr Hunt despite a review being promised by former PM Liz Truss), Cottrell is outnumbered.
The Bauer & Cottrell co-founder is at odds with compliance firm Professional Passport, IR35 contract reviewer Qdos, and staffing body the REC, as all three want an IR35 review.
'Hunt needs to get contractor taxation right'
In a letter to the chancellor, Neil Carberry, chief executive of the REC tells the new Treasury boss of the “need to get taxation for contractors, freelancers and temporary workers, right.”
“Abolishing changes to IR35 from 2017 and 2021 didn’t solve this problem,” Mr Carberry says in his letter, obtained by ContractorUK, referring to Mini-Budget’s IR35 reform repeal vow.
“And keeping them does not do so either. A review would include establishing a Single Enforcement Body and…committing to making further improvements to HMRC’s CEST.”
'Lost count of how many IR35 consultations'
Crawford Temple, chief executive of Professional Passport agrees that a review of both the “IR35 and off-payroll” frameworks would be a welcome announcement on Thursday.
Qdos CEO Seb Maley is hoping for the same from the chancellor, yet he sounds painfully aware of the reasons Cottrell cites – the reasons not to scrutinise IR35 for the umpteenth time.
“The IR35 legislation does need reviewing, but I have lost count of the number of consultations launched into this legislation over the years,” Mr Maley wrote for FT Adviser.
“Few [of the reviews] if any…have resulted in meaningful change. If Hunt were to announce a review of IR35, it would be welcomed, but taken with a large pinch of salt”.
'Growing companies don't like the sound of it'
But as pointed out today by Cottrell, who was previously seconded by HM Treasury for her expertise on IR35, “there is nothing more that a review can reveal that is not already known.”
As to the unknowns of Mr Hunt’s statement, they revolve around how far the chancellor will look to small businesses to help him plug a fiscal gap of £50billion.
“It should come as no surprise that growing companies don't like the sound of it,” reflects contractor accountant Chris James.
A director at Workwell, Mr James could have been referring to Autumn Statement overall, but he was actually commenting on the mooted plan to make dividends more taxing.
He specified for limited company directors: “To say another increase in dividend tax would be a kick in the teeth [for them], is an understatement.”
'There's now no point in starting a business in Britain'
With its supporters having endured a pandemic with little income support, the prospect of them having to pay more to HMRC just to pay themselves beggars belief to Forgotten Ltd.
“Reading [Camilla Tominey’s Telegraph] article and taking the prime minister’s actions as chancellor over the pandemic [into account], it’s very hard not to agree with her headline:
“‘There’s no point in starting a business in high tax Britain,’” quoted the group. “To which we could add…‘And if you do, you probably won’t get support at a time of national crisis.’”
'Trying to create a business in an unfavourable economic climate, already'
Online, one post on a networking site confirmed: “As an entrepreneur, I'm [already] trying to create a business in an unfavourable economic climate -- covid, Ukrainian war, energy price crisis etc.
“It would be great to see something as simple as an increase in the tax-free dividend allowance to help support innovation in the UK.”
Given that the exact opposite is rumoured, Qdos’ Mr Maley almost put the chancellor on notice. “This would be another short-sighted, counterintuitive move.
“[It would be] one that increases the tax burden on millions of small business owners at the worst possible time.”
Mr Maley appealed to chancellor Hunt: “Now isn’t the time to inflict more pain on freelancers, contractors and the self-employed, who are key to the economic recovery.”
'Apply your top rate of dividend tax'
If Hunt does cut the tax-free dividend allowance from £2,000 to £1,000, the net impact will be to take that £1,000 and “apply your top rate of dividend tax to it,” advises Workwell.
“So for example, if you pay higher rate tax,” continued the firm’s Mr James, who specialises in limited company accounting, “that's £1,000 at 33.75 %, or £337.50 a year.”
At Professional Passport, the worry is that the chancellor’s tax tweaks (including his widely trailed ‘stealth' tax rises to be achieved by freezing thresholds), will be too much for many to bear.
'Tempted to join take-home pay boosting schemes'
“Unless people receive some help as a matter of urgency, I anticipate that some workers will be tempted to sign up to disguised remuneration schemes that promise more take-home pay,” warned Professional Passport's Mr Temple.
“Such schemes should be avoided at all costs. Off-payroll and the cost of living crisis have created the perfect storm for such schemes to thrive and thrust innocent victims into more financial hardship.”
The Low Incomes Tax Reform Group is concerned for the existing batch of ‘disguised remuneration’ victims, however.
'Change the path of HMRC's loan charge'
Ahead of Thursday’s statement, LITRG’s technical officer Meredith McCammond told ContractorUK: “We know that there are many different people and groups heavily invested in changing the path of the loan charge.
“We also know that there are differing concerns, thoughts and proposed solutions, depending on how they or those they represent are impacted by the loan charge.
“However we would hope that the LITRG proposal is something that all those concerned in tax profession, campaign groups and other stakeholders could get behind”.
'No end in sight for loan charge contractors'
IWORK’s Julia Kermode says that thousands of people continue to be affected by the “misery” of the HMRC loan charge, “with no end in sight.”
Appealing to the chancellor directly, Ms Kermode said: “Surely it can’t be right that people are facing financial and professional ruin [and] suffering unbelievable stress [to the extent there have] very sadly [been] nine suicides, all because of a HMRC policy which has been flawed from the outset?”
Taking to LinkedIn to encourage people to support lawyer Sarah Gabbai’s ‘fair resolution’ proposal to the loan charge, Kermode says it is “inhumane” for the government to be “standing by and allowing it to happen.”
'Expect unpopular decisions from Hunt'
Also contemplating what the former health secretary will announce in just two days’ time, is NumberMill boss Louise Rayner.
To the many submitting their wish lists to the chancellor on IR35, the loan charge and other contractor measures, accountant Ms Rayner cautioned: “He’s not got a lot of room for manoeuvre. And many of his decisions won’t prove popular.
"Hopefully he’ll [come to] be regarded as a safe pair of hands… [because for too long] we’ve had too much volatility. What we now need are stability and certainty -- to enable businesses to plan for the future with confidence."