Autumn Statement 2023: Hunt confirms IR35 offset to apply from April 6th 2024, in ‘unradical’ mini-Budget for UK contractors
Chancellor Jeremy Hunt used Autumn Statement 2023 to confirm the IR35 offset mechanism for the contractor sector will go ahead from April 6th 2024.
Charlie Hemsworth of status advisory Bauer & Cottrell agrees that with the “fix” to double-taxation of IR35 now confirmed by Mr Hunt, PSCs and their engagers will be a bit relieved.
“Chapter 5.50 of the AS vowing to legislate in Finance Bill 2023 to allow HMRC to reduce a deemed employer’s liability will be of some comfort to workers, agencies and end-clients.
“That comfort needs to be ‘offset,’ though, against the off-payroll working rules clearly being here for the foreseeable,” she said, “just as Jonathan Gullis MP got told on the AS’s eve.”
Nonetheless, it means clients can soon engage PSCs “with confidence as the risk of liability under the off-payroll working rules will be substantially reduced,” says The Law Place.
'The set-off mechanism, finally'
Another legal firm, ReLegal Consulting echoed: “It’s good that legislation is finally set to take effect on the offset for the calculation of PAYE liability in IR35 non-compliance cases.
“The objective of the policy is to address the potential over-collection of tax and National Insurance Contributions by HMRC.
“So,” continued the firm’s Rebecca Seeley Harris, “this will resolve an obvious unfairness in the tax system and will apply from 06.04.24 but in respect of payments made since 06.04.17.”
'Hunt actually unveiled 111 pro-business measures, as the offset counts'
Former tax inspector, Carolyn Walsh says the offset’s confirmation is so positive that Hunt could have claimed he had 111 measures to back business, not the “110” he said he was unveiling.
“The chancellor also said today he’s giving HMRC £5billion to ensure people ‘pay the right amount of tax.’ Well -- given the offset, for once; that might not mean 'more' tax.”
A director at Oblako Ltd, Walsh added that divisive IR35 reform was “never meant to kill off the relationship between contractors and hirers; only regulate it.”
'Autumn Statement 2023 isn't very radical'
But not all contractor advisers are impressed.
Shown HMRC’s newly published ‘Off-payroll working (IR35): calculation of PAYE liability in cases of non-compliance,’ one accountancy boss said, “We knew that was coming.”
Louise Rayner, who runs NumberMill continued with her downbeat assessment: “As I said, Autumn Statement 2023 isn’t very radical. We expected the living wage increase to £11.44 an hour, too.”
The eight-part HMRC document on the offset almost agrees with Rayner, saying the measure from April 6th 2024 is expected to have a "negligible impact" albeit on up to 53,000 businesses.
'IR35 offset to cost HMRC £1.85million'
Nonetheless, it is “expected” to “improve business’ and civil society organisations experience of dealing with HMRC as they will now be able to claim a set-off against their tax liabilities.”
HMRC added: “The operational impacts on HMRC of implementing this measure are in the region of £1.85 million from the tax years 2023 to 2024 to 2028 to 2029.”
Should PSCs be unmoved about the set-off (which HMRC is already effectively trialling), SG Accounting’s Dan Mepham suggests there’s little else in the AS to lift their spirits.
“The ‘full expensing’ regime being made permanent is indeed unlikely to impress many contractors,” Mepham said, responding to questions.
“I was hoping for more [from Hunt] to support contractors and small business. Unfortunately most small company owners will feel disappointed at this Autumn Statement.”
'Not one of the chancellor's 110 pro-business measures will directly help PSCs'
Another contractor accountant, Graham Jenner, tots up the chancellor’s measures to the same nil-sum for contractor-directors.
“110 measures were today announced by Hunt to back business – but not one of direct help to Personal Service Companies.
“Sole traders will benefit from him axing Class 2 NI – saving £192 p/a, and him cutting Class 4 rate by 1% to 8%, saving on average a further £158 p/a. But PSCs pay neither.”
The Jenner & Co boss clarified that actually, 'most' PSCs pay neither, although some company directors who choose to take a larger salary dividend could now save.
'Class1 NICs cut will save umbrella contractors up to £750 a year'
Both the contractor accountants (Mepham and Jenner) said umbrella workers would benefit most from the chancellor’s almost ‘rabbit out the hat’ announcement -- a tax cut for 27million employees.
“The main ContractorUK readers who will benefit from Hunt shaving 2 per cent of Class 1 National Insurance are those employed by umbrella companies,” said Mepham, SG’s boss.
“In fact, umbrella company contractors who earn above £50,000 a year will now be looking at a saving of roughly £750 a year.”
'Unusual step of January commecement'
Julia Kermode, CEO of payroll auditor PayePass, observes that positively for those feeling the cost-of-living crisis, Hunt said the two per cent cut will apply from January 6th 2024.
Chris Bryce, CEO of trade body FCSA welcomed the “unusual step”, characterising the fall in Employee NICs from 12% to 10% in the New Year as the AS’s ‘headline’ for most workers.
Crawford Temple of Professional Passport agrees it’s hard not to support Hunt putting ‘more money in the pockets’ of umbrella contractors.
But the compliance organisation’s CEO, Mr Temple hinted the government forging ahead with “tougher consequences” for tax avoidance scheme promoters suggests they remain at risk.
“These [consequences] include a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop; and a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company.
“These are nice words full of good intentions,” reflected Mr Temple, “but they need to be supported by effective enforcement action which has been sadly lacking across the sector.”
'Umbrella regulation missing'
The founder of iWork, Ms Kermode of Payepass regrets that at AS '23, “the government still hasn’t delivered its promise to regulate the umbrella industry and in turn, protect 700,000 workers.”
The Freelancer & Contractor Services Association (FCSA) confirms that umbrella regulation was indeed “missing” from the chancellor’s speech and his ‘Big Green Book.’
“However, I wasn’t particularly surprised,” says the association’s Mr Bryce. “[After all,] the government hasn’t yet published its response to the consultation, which closed at the end of August. And in any event, there’d be technical difficulties in including such measures solely in a Finance Bill.”
Bryce is among those who has suggested that with the ‘holy grail’ of umbrella regulation, as Clarity Umbrella has put it, the ‘proof of the pudding will be in the eating.’
'Before we start celebrating on behalf of small companies...'
Using that exact phrase this afternoon to describe a new anti-late payment proposal from Mr Hunt is Adam Home, senior collections manager at Safe Collections.
At AS chapter 5.143, HM Treasury says: “To encourage prompt payments, the government will introduce a requirement that firms bidding for government contracts over £5 million from April 2024 will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.”
Mr Home reflected: “We welcome today’s announcement of tougher regulation to combat the scourge of late payment, but the proof of the pudding will be in the eating. So we will wait to see what concrete plans are put forward before we start celebrating on behalf of small companies.”
'One pension pot could be good news for contractors'
Similarly reserving judgement is Angela James of financial advisory Yolo Wealth, albeit in relation to the chancellor’s new pension announcements.
But not the state pension which Hunt is hiking by 8.5% from April 6th 2024 to £221.20 a week, but his vow to consult on granting savers a legal right to require a new employer to pay pension contributions into their existing pension pot.
“The announcement on the ‘one pension pot’ for life could be good news as this will give everyone in the UK the ability to purchase a pension of their choosing and ask any employers, or umbrella companies, to pay into their own pot,” says James.
“So it’s good news as this gives the individual much more choice, given that employer pensions can be restrictive when it comes to investment choice.”
'More tax cuts to come pre-election'
For anything meatier, more helpful, or just more exciting, tax firm DNS Associates suggests contractors have now got to wait for pre-election giveaways.
“There's likely to be more tax cuts announced in April next year, closer to the election,” said the firm’s Sid Agarwal.
“But contractors really wanted quicker action to address their heavy tax burdens now – the highest incoming for the UK since 1948 according to the ONS. These limited and umbrella company workers want tangible support that better fits their needs and reduces the financial pressures they're facing.”
However, both the IR35 offset being confirmed from April 6th 2024 and the National Insurance Class 1 cut being brought forward to January (when it would ordinarily have taken effect from April), has led to chatter that the government is planning to call a general election in May.