A bare Autumn Budget for contractors confirms IR35 reform as ‘done and dusted’

A bare Budget for UK contracting has been unveiled by a covid recovery-focussed Rishi Sunak, with neither IR35 nor umbrella company regulation featuring in his Red Book.

While the chancellor did unveil new HMRC measures to target scheme promoters, the omission of off-payroll and umbrella working is disappointing to experts, but not surprising.

To three advisers to PSCs, the ‘no-show’ of IR35 is also concerning because the silence from Mr Sunak speaks volumes about how the government now regards the April rules.  

'IR35 is done; nailed, closed'

Seb Maley, CEO of Qdos told ContractorUK: “I’m not surprised that IR35 didn’t get the mention that it deserved [because] as far as the government is concerned, their work is all but done, following the introduction of reform in the private sector.”

Similarly, Sumit Agarwal, managing director of DNS Associates told ContractorUK: “The government clearly feels it’s nailed the IR35 issue already.

“And with the umbrella market having the Single Enforcement Body somewhere down the line, HM Treasury isn’t keen to fix something which is working nicely for its coffers.”

The third adviser, accountant Helen Christopher of Orange Genie confirmed to ContractorUK: “We can’t really be too surprised Autumn Budget makes no mention of IR35.

“Or surprised it doesn’t mention brollies either. The government thinks IR35 is now done and dusted, a closed subject. And brolly regulation is maybe on the ‘too difficult’ pile right now.”

'Disappointing of the chancellor to ignore umbrella companies'

Lucy Smith, who runs an umbrella company and has supported the increasingly loud calls for umbrella company regulation, sounds dejected.

“It is so so disappointing to see that once again the umbrella industry has been ignored,” the managing director of Clarity Umbrella began in a statement this afternoon to ContractorUK.

“We had hoped to see an allocation of some budget for the SEB – the Single Enforcement Body -- which would then in turn lead to some kind of official legislation for the industry.

“The industry is ridden with cowboys and schemes, and with much criticism being thrown at umbrellas, it’s just another stab in the back for those who are operating compliantly.”

'More words'

Crawford Temple of Professional Passport, which audits umbrellas for compliance, is disappointed too, including at the frustrating sense of déjà vu.

“Today we heard more intent, more commitment and more words to clamp down on tax avoidance from the chancellor,” said Mr Temple, referring to the new HMRC policy paper.

“And [unfortunately it’s all] not for the first time. Tax avoidance and disguised remuneration schemes have been allowed to thrive for many years and never more so since the introduction of the new IR35 legislation in April.”

'Umbrella workers to be hit'

An expert on the legislation, Chris Mattingly, CEO of IR35 Navigator echoed to ContractorUK: “As a result of the IR35 reforms we now see many more contractors being assessed as inside IR35, leading to many more engagements operating through payroll umbrellas.

“[And] with today’s budget announcement [confirming it], the new 1.25% Health and Social Care Levy will hit umbrella workers the hardest.”

“For example, without a rate increase to compensate, a typical umbrella worker with a billing rate of £25 per hour will be £548 worse off in 2022-23, and at £75 per hour, their take-home pay will reduce by £1,782.”

'Historic reforms to social care'

In his Autumn Budget speech, Mr Sunak briefly referred to the 1.25% increase -- which will apply to dividends as well from April 2022. But he used some positive language to do so.

In fact, before also hinting that the government wants to at some stage boost take-home pay (“we believe people should keep more of the rewards of those efforts”), he trumpeted prime minister Boris Johnson’s “historic reforms to social care.”

“As to those affected by IR35, they face a hike of 1.25% to their dividend rate – not that it got a mention in those terms in the chancellor’s speech,” points out IR35 specialist Kate Cottrell, who observes that the Red Book states the dividend tax will raise £1.34m in 2022-23.

'New HMRC freezing power against promoters'

A former tax inspector, Ms Cottrell added: “A new power for HMRC to seek freezing orders against avoidance promoters, alongside the other new anti-promoter measures, is possibly the government’s attempt to address dodgy umbrellas.

“They are of course already working on some kind of enforcement body, on top of these whole new range of HMRC powers, but the body will take some time to come to fruition. Unequivocally though, with IR35, the government clearly considers there is nothing more to do, or even worth mentioning.”

'Business as usual'

On off-payroll’s exclusion from Autumn Budget, Chris James of JSA agrees:

“I’m not surprised, as the government believes it has completed the implementation of the ‘new’ IR35, and now thinks that the off-payroll rules form part of ‘business as usual.’”

Mr James also told ContractorUK that umbrella regulation is still probably some way off, saying his talks with business department officials indicate that the SEB will be part of the Queen’s Speech in the Spring of 2022.

'Closing down disguised remuneration schemes'

To compliance expert Mr Temple, it all smacks of officialdom dragging its feet.

“We know that HMRC holds all the data it needs to seek out the perpetrators of the schemes and yet they continue to be slow to act and shut them down

“We can only hope that the arrival of the Single Enforcement Body will speed things up, but the cynic in me says otherwise [as] the chancellor has a big challenge on his hand in difficult times.”

Professional Passport’s CEO continued: “[That said], closing down disguised remuneration schemes could be an easy win for him at a time when he needs more money to support our economy and the public sector.”

'Well-trailed'

Of the Budget measures to clampdown on avoidance promoters, released alongside a new HMRC paper on Discovery Assessments, WTT Consulting says they are intended to raise £130million.

But the advisory’s tax director Graham Webber caveated: “These new measures against the promoters of tax avoidance were well-trailed and according to the Red Book, are intended to raise [that £130m over the next few years. Furthermore], bear in mind…that this is from penalties being applied to those promoters -- who stay around long enough to be caught.”

A former tax official who once did some of that catching, Carolyn Walsh, reflected: “We got the usual focus today from HM Treasury on closing the tax gap through reducing tax avoidance, schemes, and tax errors."

'Rosy picture painted by those who just aren't listening'

Now a director at CWC Solutions, Walsh added: "And despite him painting a rosy picture in his Budget speech, there was nothing from the chancellor to help contractors and small businesses, not even a mention of the funding required to set up the SEB, which has a remit to support workers’ rights.”

Some advisers to contractors point out that in his speech, Mr Sunak twice referred to him and his Treasury team listening to industry bodies, thinktanks and worker groups – The Centre for Policy Studies, The TUC, The Institute of Economic Affairs for example.

But the chancellor isn’t doing the same with UK contracting.

An irritated but also concerned Mr Webber at WTT Consulting said: “It remains a frustration that those with the power to make a difference – mainly found in HM Treasury – have failed to listen to the industry; to advisers to the industry, even to the House of Lords, and even to MPs, preferring instead to continue on an anti-contractor arc that can only damage the UK economy.”