My IR35 advisory’s Autumn Statement wish list to chancellor Jeremy Hunt
Putting aside the current woes internationally and for the UK, notably climate change, the cost of living crisis and the war in Ukraine, the world of contracting has its own hopes, fears and needs for Thursday November 17th 2022, Autumn Statement day.
Sadly, and not for the first time, the contractor sector faces huge uncertainty, extraordinary risk exposure and extreme trepidation over what may or may not be announced by chancellor Jeremy Hunt. The last thing we need is any surprises in the Autumn Statement 2022 that impacts contractors and the field of independent work, writes former HM Treasury secondee Kate Cottrell, co-founder of status specialists Bauer & Cottrell.
Here is our wish list that would return the contracting world to what it does best -- providing skills and talent and enabling growth for all industry sectors.
1. No IR35 review, please
The review promised by the former prime minister Liz Truss has not been commented on by the new Rishi Sunak-led government yet. Nor has it been ruled out.
IR35 has been “reviewed” more times in the last 20 years than any other piece of tax/NIC legislation. The OTS, the House of Lords, the NAO and the Public Accounts Committee to name just a few, have reviewed IR35 and made serious recommendations to government on improving it, including scrapping it outright.
The IR35 Forum, the accountancy bodies, IR35 specialists, academics, trade bodies, agencies and other interested parties have responded to consultation after consultation on IR35 (and personal service companies), aside to ‘calls for evidence.’
The governments of the day, ironically, have agreed with most of the recommendations made by these few and others -- but nothing changes, and the goodwill of many contributors has been lost on the grounds of reviewing IR35 being a waste of time.
There is nothing more that a review can reveal that is not already known.
2. Repeal Chapter 10 ITEPA (Off-Payroll Working rules), please
It may be politically-difficult for chancellor Hunt to go along with any proposal of the previous chancellor, Kwasi Kwarteng, but Mr Kwarteng’s move to repeal the ‘Chapter 10’ rules is well worth a closer look.
Since April 6th 2017 in the public sector, and April 6th 2021 in the private sector, these rules have caused very significant costs to business and served, not to ensure that the correct tax treatment has been applied -- as originally intended, but instead seriously affected hiring decisions (blanket bans) and resulted in huge shortages of specialist talent and delayed projects. Not to mention end-client organisations moving to the big consultancies and paying far more money for exactly the same services. Oh, and in a blow to the taxpayer, many of those tying up with big consultancies are government contracts.
Repealing the off-payroll rules would draw a line under the embarrassment of the public sector owing millions to HMRC for getting off-payroll assessments wrong. And it would call a halt to the ridiculous situation of HMRC being unable to offset tax/NIC, which appears to make all their assessments wrong and can result in no tax being paid by the contractor.
3. Abolish HMRC’s CEST tool, please
The CEST tool is not and never has been fit for purpose and it is the reason that the public sector was found to have got their assessments wrong (owing those embarrassing millions of pounds).
The continued use of HMRC’s Check Employment Status for Tax tool – behind so many bodged public sector assessments -- means that there will be many cases in the private sector of IR35 determinations being wrong. Why? Well, if you just input ‘Yes, I can send a substitute’ that’s it – you are self-employed or outside IR35, which may not be the correct result. It is impossible to use CEST for off-payroll cases with typical complicated contractual chains.
No one can rely upon CEST.
4. Clarity on Managed Service Company legislation, please
We have two Managed Service Company enquiries underway by HMRC on well-known accountancy service providers, with contractors facing massive bills for tax and NIC plus the potential for these bills to extend for further years.
There may be more MSC cases in the pipeline and it could be years before the tribunals and courts reach a decision in the two cases we know about. The MSC rules are wide-ranging and where HMRC believes they apply could end up affecting many accountants in the contractor industry.
Contractors can’t wait for court action and need to know now if they are in danger of being found to be an MSC company. And if they change their accountant, they need to know now that they are not jumping out of the frying pan into the MSC fire.
HMRC has a duty to inform and alert taxpayers to known risks. So can we please have (at least) a simple checklist from HMRC, listing what factors they consider demonstrate MSC risk?
5. Regulate the umbrella company market, please
Regulation is the only way to differentiate between a compliant, useful service and the many rogues operating in the umbrella market.
The absence of umbrella company regulation must permit one of the biggest sources of tax/NIC avoidance out there in 2022, and one where their users are at worst being robbed of holiday pay, their benefits, and having their salary skimmed or at best, are subject to spurious charges.
HMRC has provided much-needed guidance but that guidance alone is not enough and action is needed now.
6. No tax/NIC changes for contractors, please
Limited company contractors were largely without any assistance when the current prime minister gave covid-19 income support to everyone else. Limited company contractors had to continue to work, as they were not (and are not) entitled to any absence pay. But they too, are suffering with the cost-of-living crisis and like the sole trader self-employed, are unfairly often seen, as an easy target for tax and NIC hikes from chancellors needing to make up the numbers.
Please Mr Hunt, not this time – not unless you want to destroy the flexible talented workforce that creates jobs and often leads to the creation of highly successful companies, that fill HMT’s coffers.
Chancellor, grant these six wishes of ours (which we know many in the contractor sector share), and you will be well on the way to economic stability and above all, can actively demonstrate that the Conservative party is once again the party of business.