Yesterday’s Autumn Statement was pretty much what had been predicted for contractors with public sector reform of IR35 set to go ahead as planned.
However, IPSE is taking legal advice about whether it can challenge taxing contractors as staff without granting employment rights — an upshot of the reform — on the grounds it is unfair.
Should the Government still not change its mind, public PSCs face having PAYE tax withheld from payments they receive from April, if their ‘paying agent’ says IR35 applies.
And as the payer must interpret both IR35 and if PSCs are caught by it, the interpretation PSCs expect of the payer may dictate if the PSC accepts work from them in the first place.
Affected PSCs must now ask what happens if they disagree with the IR35 opinion; if they can submit an alternative opinion and should it differ, how to appeal and reclaim overpaid tax.
The Law Place has helped explain why obtaining a second opinion is a good idea: “It’s just not reasonable to expect public bodies to be employment status experts and provide…an impartial service. Shifting the burden of assessing the application of…[IR35] to the body responsible for paying contractors is likely to be problematic, [but] result in much greater tax receipts”.
IR35 reform; The sting in the tail
“It’s a bit harsh, isn’t it? Public sector PSC workers even lose the 5% allowance because the burden of deciding whether IR35 applies has been taken away.”
These were the words of an ex-tax official responding to AS 2016 answering a question that HMRC posed in the IR35 reform consultation — keep the 5% expenses rule, or scrap it?
“We are outraged that the 5% tax-free allowance for business expenses will be removed from off-payroll workers in the public sector,” said the FCSA.
There is indignation that the new complexities that will surround IR35 status will mean that contractors will need more accountancy support going forward to enable them to manage their financial affairs. It is unlikely contractors will just rely on in-house public body opinions and will have to seek out other at additional cost.
Many feel this is just another case of contractors who are helping prop up the economy being unduly penalised.
Raid on the ‘FRS’; (Forget Real Simplicity)
The most swingeing and unexpected of the chancellor’s anti-contractor measures is a new 16.5% rate for VAT Flat Rate Scheme PSCs with limited costs. There has thus far been no consultation on the matter.
It is forecast to impose higher VAT bills on the bulk of IT sector PSCs. Some contractor accountancy firms have said only some PSC workers will be caught by the “limited costs” critera
However, at this stage, caught-PSCs are those which incur costs on “goods” of less than 2% of VAT inclusive turnover, or of less than £1,000 a year.
Additional AS 2016 announcements with the potential to leave contractors worse-off include the introduction of the salary sacrifice clampdown (see next post), a promised consultation on business expenses and a promised consultation on incorporation.
“The chancellor expressed concern about the contribution of ‘incorporations’ to the tax gap,”
There was no real detail in the statement and a consultation will follow, but the benefits of operating through a limited company may be in the spotlight here.”
Overall it was not what contractors had hoped for from Mr Hammond. It now looks to be increasingly unlikely that anything can be done to stop the changes to IR35 coming into affect and contractors will have to take them on board as best they can. However whilst there were definitely gloomy moments some point to a host of new infrastructure projects and funding for ventures that could definitely make contracting in the UK a bright prospect for many
A brief overview of some other proposals announced in the Autumn Statement
·Make disguised remuneration avoidance schemes less appealing to employers
·Spend £23bn on innovation over the next five years
·Review R&D tax credits and provide an extra £2bn a year in R& D funding
·Invest over £1bn by 2021 in fibre connections and 5G
·Provide £500,000 a year for FinTech specialists and appoint FinTech envoys
·Allocate an extra £450m to trial digital signalling technology on trains
·Keep corporation tax (corp tax) roadmap as it is, so it falls to a low of 17% in 2020
·Look to bring non-resident firms with taxable income from UK into corp. tax system
·Spend £1.1bn on English transport networks, and £220m on strategic roads
·Invest £390m in low emission and driverless car technology
·Inject £400m in venture capital funds to help tech firms unlock £1bn of new finance
·Fund initiative to boost management skills across businesses
·Give London greater control over delivery of employment support services
·Publish strategy for addressing productivity barriers in Northern Power House
·Pour in hundreds of millions to Local Enterprise Partnerships
·Consolidate Oxford and Cambridge as a transformation tech corridor
·Abandon future Autumn Statements, making the Budget the year’s only fiscal event