Hunt's U-turn on business tax cuts ahead of Autumn Statement 2023 revives IR35-related hopes

Chancellor Jeremy Hunt U-turning on whether Wednesday’s Autumn Statement 2023 will contain businesses tax cuts has revived recently extinguished hopes of IR35 appearing.

Bauer & Cottrell’s Charlie Hemsworth says her hope is that Mr Hunt doesn’t bottle it, with a halfway house measure to merely look into what now impedes organisations and their hiring.

“The importance of contractors to the UK needs to be given due consideration on Wednesday but what we don’t need is yet another IR35 review,” Hemsworth told ContractorUK.

“My hope? Hunt scraps the Chapter 10 rules and HMRC’s inadequate CEST. UK plc and the contractor sector needs IR35 reform repealed. And the courage to see it through this time.”

'Cuting business taxes'

The senior tax consultant was referring to Kwasi Kwarteng’s attempt as chancellor of the Liz Truss-led government to revoke IR35 reform, only for Mr Hunt, his successor, to call it off.

It seems unlikely Hunt will revoke what he reinstated last October, yet he’s already U-turned on tax cuts, as in September 2023 he wrote them off as “virtually impossible” on Nov 22nd.

But after ONS data this week showed the UK economy flatlined between July and September, the chancellor said, “cutting business taxes is the thing that’s most important”.

'You will see an Autumn Statement for growth'

In an interview on HM Treasury’s LinkedIn page Hunt reaffirmed (mainly to get out of revealing what he’ll unveil a week today); “You will see an Autumn Statement for growth.”

Growth and tax cuts are at the heart of submissions to the chancellor by veteran Tories like Sir John Redwood and David Davis.

And crucially, both of these colleagues of Mr Hunt have called for IR35 reform (the off-payroll working rules) to go.

'Very little to suggest Sunak is listening'

But IR35 contact review firm boss Seb Maley isn’t getting his hopes up.  

“One thing’s for sure -- if the government wants to stimulate growth, it needs to reduce the tax burden on the UK’s smallest businesses,” Mr Maley, boss at Qdos began yesterday.

“From Liz Truss to John Redwood, David Davis and Danny Kruger, there’s no shortage of MPs who understand the issues the [off-payroll working] reforms have caused.

“The issue is; there’s very little to suggest the prime minister -- who was chancellor when private sector reforms were introduced -- has any interest in listening to them.”

'Fix the problems with the off-payroll rules'

More creditable is to hope the government uses Autumn Statement 2023 to ‘fix the problems’ with the April 6th 2021 legislation, Maley believes.

And fixes are being already applied in three key ways -- a triple-action which in of itself makes ripping up Chapter 10 look even less of a prospect.

First, HMRC has vowed to improve its contracted-out guidance; it has upgraded CEST to a new platform, and third, it plans to introduce an offset mechanism to stop double-taxation.

'Draft offset legislation published at or around Autumn Statement'

Matt Fryer of Brookson says if Autumn Statement does contain IR35, it will be to nod at one of the trio; most likely the offset which, ultimately, will let PSCs keep more of their money.

“We fully expect the offset to take effect on April 6th 2024, and are hopeful draft legislation is published at or around Autumn Statement,” Fryer, Brookson’s boss told ContractorUK.

“This [change to the OPW rules] will reduce the risk of engaging with outside IR35 contracts, and hopefully unlock any outstanding blanket bans on working with [PSC] contractors.”

'Let people keep more of the money that they earn'

Dents to take-home pay -- due to such bans for PSCs or due to paltry pay rises in a cost-of-living crisis for other workers, is bothering a former Cabinet minister.

The UK’s home secretary from 2019-2022, Dame Priti Patel yesterday reportedly said Autumn Statement must be used to allow people “to keep more of the money that they earn.”

Contractors who have had to sideline, close, or make dormant their PSC in favour of heavier- taxed umbrella company working due to IR35 reform, will welcome Dame Priti’s comments.

'Unscrupulous, non-compliant umbrella companies'

But individuals “forced” to operate through “unscrupulous or non-compliant” umbrella companies” since IR35 changed will be overlooked at Autumn Statement, says Hemsworth.

While she concedes umbrella company regulation on Wednesday is “more realistic” than her wish of OPW repeal, she says even a reply to the regulation-consultation is optimistic.

Partly, that’s because the government took 15 months to respond to the prior evidence-call, and partly because the King’s Speech on Nov 7th made no mention of brolly regulation.

'Umbrella rule-changes may be on hold'

“There was no mention of an Employment Bill in the Kings’ Speech, indicating umbrella rule-changes may be on hold,” echoes Brookson’s Mr Fryer.

“This calls into question the timing of the changes. The consultation closed in August but there’s still a lot of work to do to define ‘umbrella company’ and rollout the legislation.

“While I am hopeful of some [mention of umbrellas] at Autumn Statement, I wouldn’t be surprised if it was put on hold, then later found in the Tory and Labour parties’ manifestos.”

'Early 2024 for next stages of umbrella regulation plan'

Fresh from meeting officials tasked with eventually working up umbrella regulation, Orca Pay Group’s Rob Sharp suggests asterisking first quarter of 2024 for anything meaningful.

“The response to ‘Tackling non-compliance in the umbrella industry,’ we have been told, will have its next stages in the early part of next year,” Sharp says.

“There was a huge response and a large number of opinions, advice, agreements and disagreements with what this should look like.

“And rightly time and most importantly care is being taken to try and get this balanced before the next stages are released.”

'Secondary legislation and guidance'

Noting the King’s Speech omitted brolly regulation, thereby appearing to rule out its unveiling next Wednesday, the Freelancer & Contractor Services Association reflected:

“If anything comes forward between now and the [general] election in relation to [umbrella regulation], it will need to come through secondary legislation and guidance.”

So, a bit like tweaks to IR35/OPW which are being made, small but still potentially significant changes to umbrella company contracting are what the safe money is on.

Yet not necessarily at Wednesday’s Autumn Statement.

'New POTAS factsheet from HMRC'

The government last week announced that rolled-up holiday pay (to be calculated at 12.07%), will be permitted for irregular hour workers and part-year workers.

Also potentially affecting workers in the umbrella company market, HMRC has published a new "factsheet" relating to compliance checks for promoters of tax avoidance schemes.

Further, HMRC last week inserted a referral to its avoidance ‘blacklist’ in guidance it has for agencies on reducing the ‘risks of using an umbrella that operates a tax avoidance scheme.’

'A lot of nothings'

But anything bigger or more significant on umbrella companies looks off the cards, at least at Autumn Statement.

A contractor payroll recruiter reckons he knows why, and his reasoning could snooker almost anything contractor-specific emerging next week from chancellor Hunt.

Taking to LinkedIn, the recruiter wrote: “There will be no update [on umbrellas at Autumn Statement] or any Employment Bill, and there will be nothing that will come from the umbrella consultation before a general election. Why? Well, there is nothing in it for the Tories right now. And nothing in it for the Tories -- means nothing will happen.”

'Abolishing IR35 reform'

Even a whistleblower website for umbrella company malpractice didn’t mention umbrella companies, when asked last night what it expects to be on Hunt’s lips next week.

But as to what contractors would like to be on Hunt’s lips, the site, Contractor Voice told ContractorUK:

“Abolishing IR35 [reform] is likely to assist in labour market participation. But; it is unlikely following Jeremy Hunt's last Autumn Statement.”

The site’s Jacob Bellas added: “While it is likely that the [chancellor] will focus [his] attention on reducing interest rates, contractors will be hoping for tax cuts. [And] there is an election on the horizon…so hopefully the Autumn Statement will [at least] provide some insight into the potential [for future] tax cuts that might win the votes of small companies.”

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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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