Osborne deluged with last-minute Budget wishlists

A productivity plan; reform to the EU’s VAT rules and repealing IR35 are among the last-minute wishes being submitted to George Osborne, ahead of his seventh Budget tomorrow.

The chancellor, who is expected to hold up Greece as an example of how not to run an economy, is also facing demands to integrate PAYE income tax with national insurance.

Once hailed by the Office of Tax Simplification as a way to make IR35 redundant, the integration is being called for by economists as a starting block to build a simpler tax system.

But its effect of making the Intermediaries legislation redundant is what an accounting software firm, FreeAgent, will likely welcome, as it wants IR35 “completely” scrapped.

“Replacing [IR35] with clear, simple guidelines that are less subjective and easier for contractors to deal with” is the only alternative, the firm’s chief executive, Ed Molyneux, said yesterday.

Another step he wants the chancellor to take tomorrow in pursuit of “radical [tax] simplification” is to exempt small firms from having to charge local VAT to EU consumers.

Mr Molyneux must hope that ‘VAT MESS’ as it has become known (wordplay on the VAT ‘MOSS’ service), is regarded by the Treasury – and Mr Osborne – as a legitimate problem.

That’s because colleagues of the chancellor say he has improved his knack for distinguishing between genuine concerns and “special pleading”, the Financial Times reported on Saturday.

So he will likely ignore calls to specify every pound of his £12bn in promised welfare cuts, but he will hatch a £5bn plan against tax avoiders, and a strategy to boost UK productivity.

The latter is expected in light of widely reported figures from the Office of National Statistics showing that productivity growth averaged a little under a paltry 0.5% a year over the last decade.

Other raw data is also likely to compel the chancellor to act on ‘non-doms’ (he is tipped to end inheriting the tax-free status) and pensions (he is tipped to review tax relief on all nest eggs, not just for people earning £150,000 or more).

It is these potentially unpopular proposals that a Treasury official may have had in mind when, speaking at the weekend to the Daily Mail, he said of the new government’s first Budget that “there’ll never be an easier time to do difficult things.”

Writing exclusively for ContractorUK last week, chartered accountancy firm and business advisory Moore Stephens seemed to agree, saying that traditionally such budgets are ripe for “bad news.”

And certain tax scheme users may bear the brunt, as the chancellor is anticipated to introduce new penalties for breaching the General Anti-Abuse Rule.

Accompanying powers for HM Revenue & Customs are expected too, as are the closure of some loopholes that tax planners reportedly categorise as outside of typical avoidance.

The promised consultation on blocking expenses for umbrella and limited company contractors who are “supervised, directed and controlled” seems to fit into this category.

However the Freelancer and Contractor Services Association, which lobbied against the previous Budget’s ‘SDC’ proposal, says it “hopes” the chancellor will not “further penalise” contractors tomorrow.

Despite this, the FCSA’s chair Graham Fisher has already been invited by the Treasury to a post-Budget briefing on July 9^th - this Thursday, a day after the chancellor’s announcements.

Mr Fisher said: “If Osborne is committed to nurturing entrepreneurship then he should acknowledge the value of freelancers and contractors and make it easier for them to operate. 

“The Enterprise Bill…was welcome and I would urge the chancellor to build on the promises made then. I would like to see a fairer tax system that serves to help and support freelancers and contractors rather than penalise them.  I will be sure to reiterate this at the meeting”.

FreeAgent’s Mr Molyneux, who wants IR35 repealed, agreed. “Rather than simply paying lip service to them,” he said, “[micro-businesses] need to be helped, not hindered, in order for the wider economy to grow and flourish.”

Yet for Derek Kelly, managing director of ClearSky Contractor Accounting, helping contractors – if that’s what the chancellor is going to do – means doing nothing to IR35.

He told ContractorUK yesterday: “The last thing that contractors want is for the IR35 goalposts to be moved. Our clients tell us time and again that they value certainty and stability above all else.

“They want to know what the rules are, so they can abide them. A move to clarify IR35 through tweaking could work but, as I have argued before, what’s much more important is better education and enforcement of the rules as they stand.”

Editor’s Note: Related Reading –

What a brolly boss wants from Osborne