The build-up to Autumn Budget 2017 is still being dominated by speculation over whether April’s IR35 reforms will be extended to the private sector, but this is far from the only issue at stake for contractors.
Increasingly, it looks like a question of ‘when’ rather than ‘if’ we will see strides towards a private sector rollout.
The powerful business lobby, not to mention the recruitment and contracting sectors, would strongly oppose such a move. Business would justifiably argue that the last thing it needs in the current climate is more upheaval, what with Brexit casting a shadow of uncertainty over access to labour, immigration and the economy in general.
The IR35 ‘will-they, won’t-they’
If you take a step back most people will realise that the government would be mad to choose now as the moment to unleash the IR35 reforms on the private sector. We can only hope that sense prevails.
The smart money is on betting that we won’t get much detail on the 22nd on proposals for IR35 and the private sector, not until the 2018 Spring statement. That would imply a possible go-live date of April 2019
By the spring, HMRC will be in a better position to argue that it has ‘proof of concept’ in terms of implementation and evidence of increased tax take in the public sector, building the case for a private sector rollout.
If we’re right and we don’t hear anything about the off-payroll extension at this month’s Autumn Budget, it’s even possible that the private sector rollout might be pushed back further, given Brexit and the government’s lack of an overall majority.
But anything is possible, and it would be fullish to overlook ‘that’ announcement on November 22nd. The sheer number of competing factors at play makes it a tough one to call. One thing that hasn’t changed though is that, despite all the flak that the Revenue and its April rules have received in the last few weeks (and the flak has increased), HMRC appears to have everything in place to enable a quick rollout to the private sector, assuming it does decide to act at this Budget or in the future.
Spotlight on the gig economy
Aside from IR35, there is plenty for contractors to look out for when chancellor Philip Hammond addresses the Commons on the 22nd. A chancellor, let’s remember, who has form on hitting contractors on multiple fronts, at both Autumn Statement 2016 and Budget 2017.
But politics might see him reverse his anti-contracting stance. Might he give some recognition to the Taylor Review, with a possible consultation on the future of employment and more detail on the proposed new ‘dependent contractor’ status?
The ‘gig economy’ continues to get a bad press and the government, no doubt mindful of Labour’s better-than-expected election performance and subsequent poll bounce, will be keen to show that it’s ‘on the side of working people.’
Indeed, the chatter from Whitehall over the month or so has been about a “bold” and ‘radical’ Budget being on Mr Hammond’s agenda. Here’s hoping that this doesn’t translate into a series of ill-thought out and damaging anti-contractor measures.
Self-employed tax, U-turn on a U-turn?
One possible concern is that Mr Hammond may decide to revive his abandoned plan from the spring to increase National Insurance (NI) contributions for the self-employed. The OECD, no less, says this should happen. And the IoD agrees.
It’s not clear how this could be presented as a pro-working people measure, and the strength of objections last time around should be a source of comfort that the plan is hopefully dead and buried.
Corporation tax could be taxing
As well as hiking NI for self-employed workers, the OECD has urged the chancellor to scrap further cuts in Corporation Tax and use the money for public infrastructure projects and training programmes.
The OECD believes the £4billion cost of pressing ahead with plans to reduce the tax rate on profits from 19% to 17% would be better directed elsewhere. Worryingly for limited company contractors, who of course stand to benefit from the planned reduction, the Treasury did not reject the recommendation out of hand.
Labour pledged during the election campaign to increase the corporation tax rate to 26%, but if the government holds its nerve and sticks to the planned reduction it would send a much-needed pro-enterprise signal to UK businesses and the wider world.
It will be interesting to see how Mr Hammond calls this one.
Reaping the dividend
Staying with limited company contractors, the dividend allowance could be another one to watch next month. The chancellor announced back in March that the level of dividends individuals can receive tax-free would be slashed from £5,000 to £2,000 from April 2018.
With latest figures showing that shareholders are on track to receive a record £94bn in dividend payouts from UK listed companies this year, I wouldn’t bet against Mr Hammond going even further, sooner — with the result that contractors are caught in the crossfire of a populist measure targeted at wealthy investors and big business.
It’s easy to see why further milking of dividends for tax receipt purposes would be tempting, both politically and fiscally. Let’s hope contractors, freelancers and small businesses are at least considered in any decision-making process in this area.
Umbrellas — sheltered from the storm?
In the umbrella company space, providers, recruitment agencies and contractors will be hoping to avoid a further clampdown on Travel & Subsistence (T&S) expenses rules, and the umbrella model in general.
The recent Tory willingness to adopt (or at least adapt) Labour policies may be a worry, however, given Jeremy Corbyn’s headline-grabbing election vow to “ban” umbrella companies
Many politicians are anti-umbrella, due partly to ill-informed and misleading scare stories in the national press, but reluctantly accept that umbrella providers have an important role to play — not only as a cog in temporary labour supply chains but also vehicles for the collection of tax and NI.
There’s hope that these considerations will outweigh any desire to park Tory tanks on Labour’s lawn when it comes to any adverse announcement for umbrellas and their users.
Disguised remuneration and EBTs
One politically safer area for Autumn Budget to turn the screw on is disguised remuneration. This is despite a warning by the Institute of Chartered Accountants in England and Wales (ICAEW) to MPs against the already planned HMRC crackdown on Employee Benefit Trusts (EBTs)and other DR schemes.
Meanwhile, HMRC has recently set out draft guidance on ‘penalties for enablers of defeated tax avoidance’. Looking also at the introduction of the, Criminal Finances Act on September 30th tax avoidance is clearly a focus for policymakers. It’s also an area where there is seen to be potential for turning rhetoric into revenue for the Treasury. Better than expected figures last month relating to the ’tax gap’ (‘better’ for HMRC), aren’t sufficient grounds to make the government suddenly relax its generally strict stance. Especially not in light of the ‘paradise papers’.
No news (will be)…
In terms of any giveaways from the chancellor, the disappointing truth is that the best contractors can realistically expect to see is an indirect benefit from wider pro-business measures designed to boost certain sectors and industries. In truth, no news will be good news as far as contractors and the contracting sector is concerned, although that hasn’t been the trend at Budgets or Autumn Statements for a while now. Maybe he’ll be ‘radical’ in that respect, because we’re certainly hoping for a dull Budget from ‘spreadsheet Phil.’