Spring Budget 2024, a patchwork of token gestures by a chancellor ignoring the elephant in the room

In days gone by, when the Spring Budget came around, most contractors tuned in, hoping for a few positive announcements from the chancellor – ones that could make a real difference to their businesses.

Recently, though, it’s fair to say that things have changed. And while I’m hazarding a guess, I’d say that fewer contractors watch these fiscal statements – having lost faith in the government to deliver meaningful change, writes Seb Maley, CEO of IR35 contract review firm Qdos.

Jeremy Hunt and his Spring patchwork of token gestures

With a general election looming – and the government trailing in the opinion polls – last week’s Spring Budget 2024 would have been the perfect opportunity for Tory MP and Treasury boss Jeremy Hunt to win over voters whose confidence may be wavering.

But instead, rather than big, dramatic changes, the chancellor announced further reforms to National Insurance.

Granted, while tax cuts are always going to be welcomed, I suspect the news didn’t quite land as hoped – particularly among contractors, who yet again will mostly slip through the cracks.

Despite having the opportunity to tackle some of the biggest challenges facing these enterprising, relied upon workers, Hunt instead went for a patchwork of token gestures.

VAT threshold increase

One of those gestures came in the form of an increase to the VAT registration threshold.

Sure; this increase is a welcome development.

But the scale of it – going up from £85,000 to £90,000 – might be considered a little underwhelming, even by those who stand to benefit.

The fact of the matter is that VAT isn’t the pressing issue for contractors. It’s well down the list of taxes that need reforming, as far as contractors are concerned.

Spring Budget 2024 ignores IR35, despite now well-defined OPW issues

Arguably, the biggest challenge facing contractors is IR35.

Yet IR35 and the off-payroll working rules were completely ignored by the chancellor at Spring Budget 2024.

This was another missed opportunity. IR35 remains fundamentally flawed and while very few were expecting the off-payroll working rules to be reversed, that Hunt failed to even address either framework speaks volumes.

This was an open goal – a chance to make the many contractors who have lost faith in the Conservative government to reconsider.

Two big IR35 issues

First, consider CEST. The HMRC tool has previously been unable to provide an IR35 status determination for one in five tests carried out. Failing to take into account key case law, CEST isn’t up to scratch, with recent updates falling short.

Second, there are challenges around how businesses apply and manage the off-payroll working rules, with non-compliant blanket IR35 determinations still common practice. A lack of appropriate guidance and education drives this. Nothing was done about this on Wednesday.

Over the longer term, if the government is committed to keeping IR35 in place – and in reality, this looks likely – it must also ensure that businesses can compliantly manage the off-payroll working rules. The Public Accounts Committee are correct to have concerns this isn’t happening.

Umbrella industry regulation remains a priority

On the subject of compliance, the government did at least use Spring Budget to reaffirm its commitment to tackling tax avoidance and non-compliance in the umbrella sector.

In recent years, the industry has seen an increasing number of tax avoidance schemes posing as compliant operators. This has become even more of a problem following the rollout of the off-payroll working (OPW) rules, which has also seen more contractors working via umbrella companies – usually at the behest of clients.

As such, the government’s interest in putting a stop to rogue umbrella operators is welcome; but promises have been made before, and ultimately, actions speak louder than words.

Given time is running out ahead of a general election, it’s hard to say when precisely – or if – this might actually happen.

What could have been…

With the government staring down the prospect of an electoral loss, the Spring Budget should have been something of a radical event to get voters onside.

What would that have looked like for contractors and limited company directors?

The tax landscape facing these workers has become more difficult to navigate in recent years, whether it’s IR35, the higher rate of corporation tax or the reduced dividend allowance. Measures to simplify or reduce this tax burden would have helped hugely.

Given the current economic uncertainty, however, such a package was perhaps unlikely.

Instead, the chancellor chose to just hedge his bets, with broad – but ultimately quite minor – changes that contractors aren’t going to benefit much from.

So, as the UK gears up for a general election – with the votes of many self-employed workers and independent consultants potentially up for grabs – it’s hard not to condemn this government as presiding over a series of missed opportunities with contractors paying the price.