Next month’s Autumn Statement 2023 be like this for contractors...

Sadly, if you’re a contractor wanting tangible support from the government, or even just a little support actually, anything radical or exciting at Autumn Statement 2023 looks like an outside bet, writes Louise Rayner, boss of specialist accountancy firm NumberMill.

Nothing too exciting, not in chancellor Hunt’s sober world of interest rate reduction

The ‘coffers are just too tight,’ or words to that effect, is what we’ll likely hear from chancellor Jeremy Hunt on November 22nd. That’ll be him batting away calls for tax cuts – even though those calls haven’t necessarily come from contractors and the contractor sector, but from quarters closer to him than he might have liked.

My take is that the public don’t seem massively keen on restricting public sector investment particularly in the NHS, to allow tax cuts, anyway. So maybe Mr Hunt’s well-reported keenness to continue the focus on reducing inflation and reducing the debt liability (to potentially facilitate lower tax rates) is more politically astute than many might think.

Changes to IHT, a headline-grabber even Hunt can’t resist?

That said, as a former supporter of former PM and PR man David Cameron, the Treasury boss will know the value in a good headline, especially at a time when the cost-of-living crisis isn’t massively letting up.

And to that end, it has been muted that the electorate feel that the current Inheritance Tax regime is unfair. The charge is; IHT penalises those who aspire to create wealth in their lifetime, as the regime results in it being taxed twice. So it’s eminently possible that next month’s Autumn Statement could at the very least make IHT more muted, with the effect of lessening the current 40% rate or increasing the thresholds over a phased period.

Pensions and the triple-lock

Currently, the state pensions are linked to inflation and are set to rise at approximately 8%, so might the chancellor tweak this as unaffordable?

Such a slight tweak to the triple lock system might be something to look out for on the 22nd but I’m not sure Hunt will be brave enough, as although very expensive, pensioners feel that they are entitled to this increase, having paid into the system for so many years. This chancellor has already had junior doctors take to the warpath against him; our senior citizens joining the fray might not be a good look.

An alternative could be to means-test, and that would be slightly more attractive and palatable to some pensioners. Or perhaps the chancellor will look at the winter fuel formula. Watch this space but some small change on pensions is probable.

Tougher rules for benefit claimants, maybe

Who knows? Autumn Statement 2023 could be used to remove the usual inflationary increase for benefit claimants. After all, it is already common knowledge that Hunt is seeking measures to encourage claimants back in to work. A far stricter regime that makes work pay is hard to argue with if you’re a hard-worker, as contractors tend to be!

And once he gets more bodies into the workplace, we’re told the chancellor wants to look after minds too, so the smart money in 37 days' time is on hearing about a mental health booster for the working-age population.

National Living Wage top-up will probably bear repeating

The government has already announced the living wage will rise from £10.42 to £11.00.

The increase is expected to apply from April 2024; the very same month that the contractor sector has the IR35 offset mechanism asterisked in the diary for introduction.

While a higher NLW might not interest the average professional contractor, a throwaway statement which prime minister Rishi Sunak made in announcing the top-up, might be, even if it just irks those directors whose limited companies made it through covid, largely unaided.

Depriving Hunt of the announcement at the upcoming Autum Statement, Mr Sunak said earlier this month -- after announcing the new NLW of £11.00, “If you work hard, a Conservative government will always have your back.”  

Changes to ISAs can't be ruled out

Rumour has it that the rules around tax-free ISAs are set to simplify as part of an Autumn Statement 2023 announcement. That reform could see the ISA allowance rise from £20,000 currently to £30,000.

Yet Hunt signalled at the IMF conference at the weekend, that it’s another 20-30 variable which is on his mind, and it’s not a good one!

Assuming £30k ISAs do somehow go ahead despite those bleak borrowing figures, it’s this sort of top-up which would actually be relevant to the contractor sector. It would be a small but interesting tax-advantage -- albeit reserved for those who actually have the cash to stash.

HMRC’s tougher tax enforcement regime needs targeting  

My own experience dealing with HMRC in supporting contractors is that the tax authority is on a mission to recoup all and any funds from fraudulent activity. That sounds fine in theory, but HMRC’s vigilance needs to be much more targeted. Unfortunately, it currently feels like the Revenue only approaches the low hanging fruit and somewhat blindly, because often tax officials don’t really understand the position.

The department takes a scatter-gun approach to heavily targeting the contractor market, seemingly because of the volumes and amounts involved. More and more, though, HMRC scrutiny bears down on the wrong players, serving to create bottle necks of investigations. It’s ultimately wasting taxpayer money and the chancellor ought to intervene.

Funding for an HMRC that is disincentivising enterprising-types? Probably

Should HM Treasury’s boss unveil an HMRC investment package to fund anti-avoidance measures or loophole closures (which Autumn Statements historically contain), Hunt should know that HMRC’s current approach is reducing entrepreneurial behaviour.

There are letters galore circulating from HMRC fishing expeditions, mainly on MSC legislation, IR35 and expenses. These letters frighten even the most compliant agency, contractor and intermediary!

Given the loud shouts by the Labour party for stronger HMRC enforcement, however, I fear the contractor sector could be in for some very overzealous HMRC activity, particularly fraud-follow-ups and again sadly, the misdirected kind.

Make BADR better   

To actually inspire and not just impede enterprising-types, the re-instatement of a larger Business Asset Disposal Relief (which has been cut from an allowance of over £10m down to the current £1m), would be timely.

Let’s see what was once called Entrepreneurs’ Relief gradually increased, so the government can tangibly encourage entrepreneurs to make more investments in business. Ultimately, a better BADR would lead to the growth government needs.

Umbrella consultation conclusion is a new licensing system. Wishful thinking perhaps…

Last but not least in terms of impact (although the prospects of this emerging on November 22nd seem slimmer than I’d like), the result of the umbrella company regulation consultation may be unveiled at Autunm Statement 2023, and the result should be the outright licensing of UK umbrella companies.

The brolly sector needs something similar to the GLA licence if regulation is to be effective.

Often overlooked, the fact is compliant umbrellas do an excellent job for HMRC, by collecting millions of pounds in PAYE via RTI. That’s why it’s an absolute shame that a few bad apples spoil the impression, and reputation of umbrella companies as a whole.

As HMRC has made so much out of its IR35 reforms, surely a licensing body for umbrella companies would be a good way forward. It might actually be the only workable way left. My big fear is that HMRC mistakenly overlay an MSC-style legislation with debt transfer rules onto umbrellas, disproportionately making end-hirers, agencies and contractors fearful, and potentially leading to the ruination of a vital part of the contractor supply chain.

However, with a general election looming, I’m with other commentators unconvinced that an effective clean-up of the bad apples is going to get underway anytime soon. Maybe the preciseness required to pick out and cleanse the bunch-spoilers doesn’t actually make it an Autumn Statement 2023 measure anyway, but for a month and not even a week  -- until the 22nd -- I can live in hope.

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Written by Louise Rayner

Louise Rayner is an ACCA accountant who has held board level positions in a wide range of large contractor based organisations

These days she runs NumberMill, a firm of practising accountants who specialise in contractors and IR35.  Her umbrella business is also FCSA accredited.  The consultancy part of the business offers pragmatic operational advice to end hirers, agencies and contractors.

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