Why contractors won’t ‘Like’ Jeremy Hunt’s IR35-silent Autumn Statement LinkedIn teaser
Our slightly overzealous chancellor has promised to “unleash our economy’s true potential” in a pre-Autumn Statement teaser he posted on Saturday to LinkedIn.
But having tied one hand behind the backs of the very people who are best-placed to do this ‘unleashing,’ his grand prediction is unlikely to ring true on November 22nd or any other time soon, writes former tax inspector Carolyn Walsh, founder of Oblako Ltd.
In his AS teaser (reproduced here, at the end), Jeremy Hunt says that “since 2021, we have had the fastest investment growth in the G7.”
However, will we really be getting more Britons back to work when projects are stalling, not through lack of investment, but through a lack of the necessary expertise?
Not Liked, but Edited...
As one contractor accountant (Teodora Dimitrova) wrote under Hunt’s post, without ‘Liking’ it I might add:
“Perhaps rephrase [your] last sentence [chancellor to;] ‘getting more Brits back to the UK, after the removal of IR35 in April 2024’”.
Wishful thinking, I fear. But I’m sympathetic, because no amount of investment can deliver success without an adequate workforce and the required expertise in our key industries, all of which are facilitated by IT, which in turn has contractors as its most skilled practitioners.
But the UK has numerous industries which are currently starved of the necessary acumen, know-how and nous, due to the conduit between companies that need to hire, and the contractors who are able to provide what is needed, being stifled by intransigence on the part of HMRC. And there we have both a not altogether unfounded fear and an enduring ignorance of IR35, in sectors which have historically relied on contractors to bring skills and expertise to make their UK businesses ‘world-beating.’ That’s a phrase we once heard chancellors utter with sincerity and confidence.
IR35? Not going anywhere
By now, most of us get it on IR35. We appreciate the Intermediaries legislation of 2000 (under which contractors decide their IR35 status) and the off-payroll rules of April 6th 2017 and April 6th 2021 (under which contractors’ IR35 status is decided by their end-users), isn’t going to get ‘Kwartenged.’ No, these frameworks aren’t going to be repealed, overturned, or U-turned any further.
But I’d wager that Hunt might fail in his duty to meet his promises to the UK public and private investors, both of whom risk not seeing a return on their investments thanks to our unnecessarily hindered contractor sector, which cannot operate with the true flexibility, nimbleness, and tax-efficiency desired by a UK plc facing a dicey economy underpinned by historically high inflation for the foreseeable.
The 8-million-patient problem needs an off-payroll fix, but not of the MSC kind
Don’t forget the public sector. It has been similarly impeded and for a longer period, resulting in, to put it bluntly, a mess of epic proportions. I’d like to share with you an NHS consultant surgeon’s take on it all.
“One of the biggest barriers to NHS elective recovery is a fear among healthcare workers that if they do work outside their contracted hours, that they will get hit with a big tax bill. Groups of clinicians from within the NHS are being encouraged by so-called ‘healthcare management companies’ to setup LLPs with their help to ‘circumvent’ IR35 compliance issues. These companies are actively stripping money out of the NHS and in my opinion are totally unnecessary. We’re told that to contract our services directly with the NHS end-users, to solve the ‘8milllion-patient-problem,’ is unlawful. It seems crazy to believe that this is true, but what would we know we’re just doctors, surgeons, nurses, physios and the like.”
What such medical professionals are being told is not true, obviously -- it’s just a sales pitch from these management companies. But there can be no clearer proof that throwing poorly understood legislation at an ill-prepared and uninformed government body, has led to a broken NHS, whose employees and contractors are being targeted by healthcare agencies, which are using IR35 reform to promote a ‘solution’ which, I understand, actually falls within the scope of MSC legislation. You couldn’t make it up; the two biggest sticking plasters to contractor-working alive, well and kicking our health service!
The result of the IR35 mess is wasted investment, wasted opportunities and an open door for scammers and schemes to profiteer, by booting out the very resources capable of solving the issues facing failing industries and wobbly sectors -- independent contractors. That’s where your investment risks going Mr Hunt -- including, potentially, some of that “£75billion” you say (below) you’ll earmark for “high-growth business.” My suggestion would be to fix the IR35-MSC mess before you make any more lofty promises.
Reintrodce the growth-enablers as a priority, either at Autumn Statement 2023 or Spring Budget 2024
Unfortunately, for its part, it seems from the latest responses of HM Treasury that HMRC believes it has fixed those ‘people working like employees and being paid as non-employees.’ In practice, the big change that has occurred is making employers liable for PAYE costs for getting IR35 wrong. But bonafide consultants, genuinely self-employed contractors and small, enterprising few-person companies have been almost entirely excluded from the majority of industries, as a result.
So for this government or the next one, at this month’s Autumn Statement 2023 or next year’s Spring Budget, the reintroduction of commercial contractors into the organisations and industries which are yearning for them, with a clear, well-governed approach, should be a priority, especially for policymakers who want to speak with creditability about “economic growth.”
Remedies rather than an unleashing, please chancellor
From what I’ve seen on the ground, it wasn’t hard to unintentionally wreck the contractual relationship between contractors and hirers, and while it might be tricky to reverse it, to not make any attempt to remedy the many IR35 ‘issues’ (just ask the Lords Economic Affairs Committee; the NAO; and the PAC), is a disservice to the UK economy. And remedies are clearly possible. Just look how HMRC has quietly decided to improve CEST and is now bowing to pressure to offer an off-payroll rules’ offset mechanism, with a view to full rollout from April 6th 2024. Furthermore, ‘remedies,’ rather than an “unleashing,” is also what I’d like to suggest to you Mr Hunt, so a more humble, less grandiose Autumn Statement please, not least because it will help you save face. Indeed, remedies will eventually emerge from HMT because when economic growth does start to make the Treasury even more red-faced, with a faltering jobs market and an NHS failing to recover, then something will have to be done. I would urge sooner rather than later.
Jeremy Hunt, Chancellor of the Exchequer at HM Treasury posted:
Yesterday the Bank of England confirmed they expect to see inflation fall well below 5% this year, and below 4% early next year, providing welcome relief and security to families across the country.
With inflation falling and wages rising - the British economy has proven itself to be far more resilient than many expected.
But we have a long way to go before inflation is back to the target of 2%. So, we will continue to put bringing inflation down at the heart of everything we do, most importantly avoiding reckless borrowing that would only make inflation worse.
Our plan to tackle inflation will also unlock our two other economic priorities – growing our economy and reducing debt. In the last 12 months I have announced a series of reforms to boost growth by unlocking private investment.
These reforms build on our long track record of attracting investment. Since 2021 we have had the fastest investment growth in the G7. But we’re not stopping here: we want to double down on this success.
Our Edinburgh Reforms will turbocharge growth in the UK’s capital markets - streamlining the listings process and cementing the UK’s status as Europe’s leading capital markets destination.
Solvency II reforms will unlock over £100 billion of productive investment from insurance firms across the UK over a decade. And our Mansion House reforms will boost pensions and unlock an additional £75 billion for high growth businesses.
Building on these reforms and our significant progress in taming inflation, my Autumn Statement later this month will set out the next steps in our plan to boost economic growth, which is one of the best ways to cut debt.
By unlocking private investment, getting more Brits back to work and delivering a more productive British state, we will unleash our economies true potential.