On 22nd November 2017 Philip Hammond will present the Autumn Budget, his second major fiscal event of the year. With Brexit on the horizon, The Chancellor has some tough decisions to make; does he provide a Budget which offers stability for UK business in the run up to Brexit and the recent decline in UK productivity or does he try to raise additional taxes to ease the pressure on public services and create a “Brexit fund”.
In recent years the spotlight does seem to have been focused on the flexible workforce, particularly changes aimed at tackling perceived non-compliance. In that context, here are the key 3 things for contractors to look out for when the Autumn Budget is announced on the 22nd.
IR35 changes in the public sector
It is now 6 months since this controversial change in legislation. Despite almost all stakeholders who have been impacted by the changes reporting significant problems and ongoing concerns, HMRC’s view is that the implementation has gone well and they do not recognise any significant issues arising. It therefore feels unlikely that there will be any further changes to IR35 within the public sector. Let’s remember, however, that the way in which employment status is determined in the public sector hasn’t changed, it’s just the entity that is responsible for making the determination who has. Genuinely self-employed contractors can continue to work in the public sector and be taxed appropriately if the end hirer and their agency are managing compliance appropriately.
Changes to IR35 in the private sector
Given that the legislative framework for changing IR35 has already been rolled out in the public sector it would be relatively straight forward for HMRC to take the view that this can be easily rolled out in the private sector without the need for a period of discussion or consultation. Whether they do this or not is anyone’s guess. Factors in play include the Government’s view on whether the flexible workforce is a vital component to the productivity of the UK economy or whether it is an easy target for a short-term tax grab. You would expect any proposal for this to be rolled out would be met with significant challenge from all stakeholders; the flexible workers themselves, the recruiters who place them and the end clients who rely on their flexibility and specialist skills to deliver projects. The impacts of a roll out in April 2018 could be significant if end hirer and agencies aren’t prepared to manage the potential changes. Those end hirers and agencies who are prepared for the potential changes stand to win significant market share from those who aren’t.
There appears to have been a resurgence of non-compliant umbrella companies, offshore loan schemes and other contrived vehicles to artificially enhance contractor take home pay in the last 6 months. HMRC are aware of this and have publicly stated that they are acting to deal with instances of non-compliance. A concern with this trend is that HMRC may take broader action to amend legislation to stamp out tax avoidance schemes (which should be welcomed) however when this approach has been taken previously it impacts on genuinely self-employed contractors. You would also hope that the recruitment sector would be all too aware that engaging with non-complaint businesses encourages HMRC to make snap decisions to change legislation which impacts the whole (and let’s not forget, mainly compliant) contractor community.