Chancellor Jeremy Hunt’s new growth plan leaves IT contractors flat, or in disbelief

Contractors will struggle to match a new pro-business growth plan from chancellor Jeremy Hunt with the frameworks in place for their limited companies, including on IR35.

In a speech, Mr Hunt told “tech entrepreneurs” that the UK is the “best possible place” to achieve their visions and if they choose Britain, his government “will back you to the hilt.”

But since the chancellor’s speech, a wealth management firm said that IR35 reform -- which he reinstated -- is a “disaster,” having caused a “brain drain of the best talent” out of the UK.

“The implementation of IR35 [reform] is causing a major headache for contractors…[as] the new rules are leading to job losses, reduced pay and increased red tape for businesses.”

'Time for IR35 review'

Clearly aware of Spring Budget 2023 on March 15th, the firm -- Alfred Dunn Ltd, continued: “It's time for a review of the system to ensure that it's fair for all involved.”

Made to Bloomberg, Mr Hunt’s speech praised “digital technology” such as ChatGPT; recommitted to making Britain the “next Silicon Valley,” and said early retirees could help.

“So the chancellor wants to bring more over-50s back into the workforce,” says IT security project manager Philip Ross, a founder of the Professional Contractors Group (now IPSE).

“But obviously, he doesn't want them to have the flexibility and professional freedom of self-employment, as obviously he would need to scrap the IR35 regulations?!”

'IR35 changes are petrol on the fire'

In a widely-criticised report earlier this month, HMRC claimed that the revised off-payroll rules of April 6th 2021 have generated an extra £1.8billion in tax revenue.

“A large proportion of that has just been brought forward via forcing people out of self-employment”, clarified Forgotten Ltd.

Unimpressed, the campaigner for PSCs added: “[Given that] small businesses [were] denied support over the pandemic… the IR35 changes are just petrol on the fire.”

'War on contracting'

Tax expert Graham Webber is critical of the £1.8bn figure too, saying it is “nonsense” to describe “an acceleration of tax receipts as contractors move to [be taxed as] employees,” as “extra.”

More problematically for a chancellor who claimed in his plan to be backing tiny enterprise (“every big business was a start-up once”), Mr Webber says a war against one-person companies has been waged -- and still is being waged.

“When our contracting clients complained to us [a few years ago] about an HMRC campaign, attack [and] war on them, I was sceptical,” began WTT Consulting’s tax director.

“[But] then we saw Accelerated Payment Notices; the Loan Charge…[and then] the two key business models adopted by contractors excluded from [covid income support schemes]”.

Mr Webber continued: “Now [alongside IR35 reform], we see HMRC turning to the Managed Service Company rules… in an effort to further damage this sector.”

A former Revenue official, Webber says the government has run a “stealth campaign targeting individuals” with the aim of “reducing contracting in the UK to a sideshow.”

'Conservatives have done nothing for self-employment'

But it’s not just experts at the coalface of small companies. Even newspapers traditionally in the corner of Mr Hunt and his Conservatives don’t see their actions corresponding with his words.

The Telegraph outlined recently “How the government waged war on the self-employed,” and this month, ran a feature on expats entitled, “The Tories have done nothing for the self-employed, so we are voting with our feet.”

Contractors and their advisers are quick to point out that unfortunately, IR35 is far from the only fly in the ointment.

'Corporation tax cliff-edge'

“From April 1st [small companies] will have two different tax rates for corporation tax,” advises WTT Consulting’s Tom Wallace.

“The small profits rate will apply up to £50,000 taxable profit at 19% [plus] a new main rate of 25%.
“That presents quite a cliff-edge for a company that hits £50,001 net profit. That would trigger a £3,000 tax liability on that additional £1 profit!
“That is why a marginal rate of tax is being re-introduced. This will ensure that those with profits of between £50,000 and £250,000 will see their tax rate gradually increase up to the full 25%.”

'Be mindful when deciding how much profit to extract'

Taking to LinkedIn about the same issue -- the government putting up tax on small companies, accountant Jeffrey Lermer clarified that dividends will remain “better, but it’s getting far more marginal.”

“From April 2023, corporation tax is rising to 25% when profits exceed £250,000 and if profits are between £50,000 and £250,000 the marginal rate is 26.5%.

Founder of JLA Chartered Accountants, Lermer cautioned: “[Limited company directors will] need to be mindful of this rate, especially when deciding about extracting profits to live on.”

'Lower business taxes'

Last week, analysis of official figures for The Telegraph showed that households have paid a reported average of £821 more in taxes this financial year.

The right-leaning broadsheet said the finding would put more pressure on Mr Hunt to cut taxes this spring -- an allusion to his Budget in under two months’ time.

Following the chancellor’s speech on Friday, veteran Tory MP John Redwood said it was right of Mr Hunt to assert that lower taxes were vital to provide incentives to invest and grow.

“He called for lower business taxes in his leadership bid in 2022,” Mr Redwood added of the chancellor. “So why not get on and cut them? The deficit will go down when we grow faster.”

'Only idiots expect tax cuts at Spring Budget 2023, says Sunak'

But Mr Hunt after his speech said it was “unlikely that we will have room for any significant tax cuts,” following prime minister Rishi Sunak implying only “idiots” would expect them in the March statement.

Being insulted by the PM would probably be a price worth paying to some small traders if it did result in a respite on March 15th, former contractor accountant Alasdair McGill indicates.

“Some are doing really well, and have huge opportunities in the year ahead,” McGill said in an update about SMEs. “And that’s across a variety of industries -- ecommerce, technology, food & drink, fashion.

“[But] some are really struggling. They survived the pandemic, but the war in Ukraine, cost-of-living crisis, and supply chain issues are all taking their toll.”

'Strain on company cashflow'

The co-founder of Ashton McGill specified that the “big issue” he’s seeing for many smaller companies is that pandemic funding “is now having to be serviced”.

“For many, the repayments kicked in last summer,” he wrote. “Just as we lurched into a cost-of-living crisis, putting a further strain on cashflow.”

After his speech, Mr Hunt denied claims from a journalist, Joel Hills of ITV, that Number 11 was failing to acknowledge that a typical household in the UK had seen their living standards since 2010 fall, relative to households in France and Germany.

'Hunt's four Es -- Enterprise; Education, Employment, and Everywhere'

Unrelated to the “declinism” which he said he opposes (in effect, people talking down Britain’s prospects), the chancellor said his “four Es” were partly how he’ll get household income growth back again.

And the four Es, designed to “unlock our national potential to be one of Europe’s most exciting, most innovative and most prosperous economies”, are Enterprise; Education, Employment and Everywhere, Mr Hunt said.

Yet to be swayed the Federation of Small Businesses reportedly hopes the chancellor has some “bite” to follow his “bark;” and the British Chambers of Commerce said the speech had “very little meat.”

'E for Empty'

Sounding even more uninspired, but sticking to the chancellor’s theme of Es, the Institute of Directors said it found Mr Hunt’s growth plan as “E for empty.”

With the ‘E’ of ‘Employment’ on its mind, the Recruitment & Employment Confederation appears to be reserving its judgement until March 15th.

“The Four Es the chancellor set out are an important contribution to the debate, but firms will be looking to government for more than words,” said the REC’s Neil Carberry.

“Looking ahead, unless Jeremy Hunt acts in the upcoming Budget to tackle labour shortages we will miss out on annual growth equivalent to two Elizabeth Lines by 2027.”

'Hunt should reform Apprenticeship Levy at Spring Budget 2022'

The confederation’s CEO, Mr Carberry added: “We are relieved that incentivising business to invest in skills and make it easier to recruit and retain staff is on the chancellor’s agenda. We need a plan for jobs that sets out how to achieve that…[and] unlocking access to training by reforming the Apprenticeship Levy is part of it”.

For some contractors, Hunt’s agenda, growth plan, and definitely his March Budget will come far too late however – and at least one ex-director says he’s not going to forget that.

The former PSC contractor posted: “The Conservatives can no longer claim to be the ‘party of small business.’ I closed my business down as a direct result of it receiving no support, and used up all my savings to try to keep it going. I will NEVER, NEVER vote Conservative again.”

Mr Hunt said: "Being a technology entrepreneur changed my life. Being a technology superpower can change our country’s destiny. So let’s make it happen."

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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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