Autumn Statement 2016: Contractors' Checklist
What contractors want from chancellors of the exchequer is rarely what they get, so it seems more prudent to look at what they can actually expect from Philip Hammond in today’s Autumn Statement 2016, writes Duncan Strike, a director of Intouch Accounting.
► IR35 reform
Since September, and probably even before, there has been a firm expectation that proposals to reform IR35 will get the go-ahead today, so they can take effect in the public sector from April 2017.
We believe that IR35 reform is going to be Autumn Statement 2016’s key announcement affecting contractors who provide services through their own personal service company to the public sector, even if the ‘new’ detail provided in a few hours’ time is scant.
But don’t be surprised if the commencement date of April 2017 is put back by a year. In recent days, anecdotal reports have filtered through that public sector engagers are indicating that they need a postponement. They fear they will simply not be ready for the new system, given that it is meant to go live in just five months’ time -- and that the digital tool they’ve been told they must use to implement it is still in development. Our wish is that the entire proposal is abandoned.
► Corporation Tax
Despite hopes raised by George Osborne, the former chancellor, corporation tax recently look set to not be cut to 15%. This is because since his comments at the Tory party conference in October, Mr Hammond has cast himself as an advocate of maintaining the fall to 17% in 2020 (it will first fall to 19% from April 1st 2017).
But comments this week by the prime minister suggest that those rates aren’t going to be attractive enough for what she wants -- Britain to be the least taxing nation for companies in the whole of the G20. So corporation tax is definitely going to fall further and faster. Today appears to be an appropriate time to at least give us the timetable for that new trajectory.
► Salary Sacrifice
Arrangements that permit workers to forego some of their salary in return for perks may become less attractive soon. The chancellor is today expected to remove many of the tax advantages, although the more common advantages for pensions advice, pensions saving, childcare and cycling equipment are likely to be unchanged.
There will likely be a few workers in the contractor sector who have been taking advantage of the existing rules in this area but fortunately, and due to the exclusions (referred to above), the lion’s share of PSC contractors will be unaffected by this clampdown.
► Less Taxing
In a departure from Mr Osborne’s Autumn Statements, we anticipate that Mr Hammond will make fewer new announcements on tax. There will be parts of the AS devoted to tax avoidance; there always is -- we expect the only announcements to be draft legislation on areas previously consulted on, such as tax penalties and steps to limit marketed tax avoidance schemes.
The two recently announced examinations into work (the first on modern employment practices and the second on the future of work) will be nodded to shortly in the House of Commons. This will let contractors know that, while tax consultations may seem less prominent, their way of working isn’t.
Another area that the government has been looking at is the closer alignment of Income Tax and National Insurance Contributions. But changes to the two systems would be immensely complicated, and we doubt that much will happen before 2020. However, we could see some small steps today towards the bigger objective -- as endorsed by the Office of Tax Simplification -- of bringing the PAYE & NICs systems closer together. Previous Autumn Statements have been used to turn the OTS’s recommendations into proposals.
Following the UK‘s Brexit decision, we expect the chancellor to be particularly focused on the economy, and how it might need specific fiscal measures in light of the UK’s ‘leave’ vote.
The recent falls in sterling are adding inflationary pressures in the UK, so we foresee some measures intended to protect sterling. A fall in sterling has increased the value of stocks and shares which could lead to hidden benefits to the UK economy, especially for investors, though sadly global profits are rarely taxed in the UK and are unlikely to add to the UK’s war chest.
We think the likelihood of invoking Brexit in February must be on the minds of legislators and it would be remiss of Mr Hammond not to actively show that he is aware of this.
► Return to PBR
While it is Brexit that will prompt more economic content in AS 2016, it is the chancellor who is said to favour such a fiscal focus for future Autumn Statements. There have been whispers in Whitehall that Mr Hammond wants to bring the AS back in line with what it used to be when it was the Pre-Budget Report (PBR) -- a primarily economic and fiscal forecasting event, not a platform for fresh tax changes. We expect him to begin this return, albeit subtly.
► Infrastructure, Online, Property and Pumps
As to what will power an anticipated fiscal boost, look for new investments in infrastructure, specifically road and rail. Tax cuts in capital gains and stamp duty are less likely but would be equally nice to see, as would a cut in VAT but more expected is relief on fuel duty; a cut or at least a freeze, and a big boost (in financial terms at least) to broadband.