Contractor sector condemns Spring Budget 2023 as a totally wasted opportunity

Treasury minister John Glen visibly swallowing a yawn 25:51 minutes into chancellor Jeremy Hunt’s speech captures how most contractors will feel about Spring Budget 2023 too.

While it was the ‘steady the ship’ Budget which contractor accountant Chris James hoped for, there was no mention of IR35, no Single Enforcement Body and no corporation tax U-turn.

“My hope was for very little that will impact [the more taxing corporation and dividend] rates from April 6th, [as] we’re far too close to that date for big changes,” said Mr James, of Workwell.

Brookson boss Matt Fryer agrees: “It’s perhaps a relief for some that there were no targeted measures announced in today’s Budget directly impacting the flexible labour market.”

He added: “Given the scrutiny on the sector over recent years, a period of certainty around the tax treatment of contractors is not a bad thing.”

'Complete absence of anything for contractors hit by IR35 reform'

With a lack of new or disruptive measures, the chancellor seems to have achieved the one thing that Freelancer Financials CEO John Yerou called for on the Budget’s eve – “stability.”

Indeed, soberly, Hunt unveiled 12 new investment zones, a new criminal offence consultation for tax avoidance promoters, and ‘Returnerships’ to aid the over-50s back to work.

So the chancellor offered a “complete absence of anything to contractors or others blighted by the off-payroll working rules,” condemns tax lawyer Rebecca Seeley Harris.

Following her ContractorUK article outlining what umbrella regulation should ideally contain, the lawyer must feel extra disappointed that PAYE contractors got ignored too -- for now.

'Nothing on umbrella regulation'

“There was also nothing on umbrella company regulation but, I still expect that to be announced in the coming weeks,” said ReLegal Consulting’s boss, referring to the Treasury.

Similarly hopefully that HMT’s November 2021 call for evidence on umbrella companies which closed in February 2022, is about to report in the coming days is Clarity Umbrella.

Clarity’s boss Lucy Smith even sounds a tad relieved that Budget 2023 omitted outright regulation, as any provisions ‘will need to support those brollies operating compliantly.’

To contractor Jacob Bellas, of lobbyist Contractor Voice, the nettle should have been grasped however.

'Missed opportunity'

“Today’s Budget 2023 was another missed opportunity for the government to spell out its plans to regulate the umbrella sector.

“[The government needs to] protect the UK's contractor workforce from malpractice such as holiday pay ‘pocketing’ and ‘skimming’," Mr Bellas said, adding:

“[And], the fact that regulation would add hundreds of millions to the Treasury coffers each year to fund a cash-strapped country seems to be completely lost on the chancellor.”

But IR35 contract review firm Qdos points out that umbrella contractors weren’t the only members of the flexible workforce who the Treasury boss overlooked.

'IR35 got completely ignored'

Alluding to limited company directors, the firm regretted: “[Hunt] completely ignored the IR35 legislation in his speech.

“This smacks of irony in a so-called ‘back to work Budget.’ The government wants retirees to return to work but won’t address the issues plaguing IR35 reform.

“These tax changes forced many freelancers and contractors into early retirement, at a huge cost to the economy.”

'Missed the opportunity to fix IR35 issues'

Likely to stick in the craw of contractors hit by IR35 reform, the chancellor proclaimed in the House of Commons, “no one should be pushed out of the workforce for tax reasons.”

On the Budget’s eve, hope was expressed that having said it would explore a “legislative solution,” HMRC may be given a mechanism to offset tax from PSCs it currently taxes twice.

But as Brookson’s Mr Fryer observes, the government today “missed the opportunity to tidy up some of the complications associated with the off-payroll rules.”

'Tax debts'

Status expert Kate Cottrell confirms IR35’s no-show, saying her team at Bauer & Cottrell are ‘glad they didn’t hold their breath,’ as the 2017 and 2021 rules are absent from the Red Book.

However the former inspector of taxes points out that £47.2million is incoming to her old employer, to improve “HMRC’s capability to collect tax debts.”

Mr Hunt also announced that a new criminal offence to hit promoters of tax avoidance, who fail to comply with a legal notice from HMRC to stop promoting a scheme, will be consulted on.

'Nothing to tackle avoidance schemes'

Tom Wallace of WTT Group isn’t overly impressed.

“Unfortunately, while the measure is welcome, the reality is that by the time HMRC issues a stop notice the scheme has long since been created, marketed, implemented, and closed. 

“This means that there is nothing to ‘stop,’ and the promoter will be unlikely to act in a contrary way to the notice anyway. 

“This will do nothing to tackle schemes at inception and protect innocent taxpayers who are sucked into them,” he said.

'Time in prison'

ContractorUK today asked HM Treasury if it could example how contractors might benefit from the measure, in a practical way, but it declined to offer any statement in reply.

However a government press notice last week said people who refuse to stop promoting tax avoidance in the UK “could serve time in prison.”

Similarly taking aim at the individuals behind schemes, expediting the disqualification of company directors involved in promoting avoidance, including the exercisers of control or influence, will be consulted on.

And that’s on top of the £47.2m injection for HMRC to manage tax debts better, allowing it to “better distinguish” between taxpayers who can afford to pay and those who can’t.

'Welcoming'

Formerly of the tax authority, WTT’s director of tax investigations Mr Wallace is pleased.

“Currently HMRC do little to identify those that are willingly not paying their liabilities from those that simply cannot afford to, so it is welcoming to see HMRC work on this,” he began. 

“Those two groups require very different approaches by HMRC and at the moment the one-size-fits-all is causing many to simply not engage in the process and suffer mental health issues as a result.”

Compliance organisation Professional Passport is thankful that at least one of the Budget’s HMRC announcements is not bound up in further exploring.

'Disappoinitng'

“It is disappointing that we have heard no proactive measures from the chancellor in today’s budget to clamp down on tax avoidance. 

“Opening up another consultation to discuss tax avoidance when they have sought the views of experts already is simply delaying any action.”

Professional Passport’s CEO Crawford Temple stressed: “We don’t need any more consultations – we need a working party of experts from the industry to sit down with HMRC and government to discuss policy. 

“There has been nothing in this Budget to indicate a real acceptance of the size of the problem and simply demonstrates the lack of commitment that the government has to tackle non-compliance and tax avoidance.”

Without specifying a timetable, the government used Budget 2023 to announce that the maximum sentence for tax fraud, seven years, will be doubled to 14 years.

'Fifty per cent increase in pension allowance welcome'

But rather than such a 100% increase, it is actually a 50% increase that contractor accountant Jo Thorne believes probably represents the chancellor’s most positive offering.

“Contractors will be pleased to hear [Hunt] confirm the 50% increase to annual pension allowances from £40,000 to £60,000 alongside the abolishment of the lifetime allowance.

“Recent cuts to benefits such as dividend tax allowances have left many looking at the most efficient way to manage their tax liabilities.”

SJD Accountancy’s technical compliance manager, Thorne continued: “Workers of this type are traditionally reluctant to lock money away into a pension, but this move will undoubtedly act as a good incentive to invest more in a personal pension, without concerns about tax liabilities.”

'Won't dismantle the obstacles'

The Association of Independent Professionals and the Self-Employed said chancellor Hunt’s move to boost pensions was indeed good -- but believes he could do better.

“Increasing the pension annual allowance and abolishing the lifetime allowance are positive measures for experienced professionals, which may give them an incentive to remain in work for longer.

“But it won’t dismantle the obstacles discouraging many other older workers from returning to the labour market.”

The association added: “Early retirees with their eye on a return to work are likely to value flexibility and autonomy more than the chance to grow their pension pot further, so it’s disappointing that government has chosen to double down on its approach to IR35 and other measures that make a self-employed venture more difficult for over-50s.

“The government needs to go much further to address the crisis in self-employed pensions. Hundreds of thousands of self-employed people are set to have inadequate pension pots to retire on, with many not saving for later life at all. Government must make rapid progress on plans to boost self-employed pension pots.”

'350,000 small firms to benefit'

Further benefitting some limited company directors, Hunt also unveiled a new policy to allow every pound invested by businesses into IT equipment, plant or machinery to be deducted in full from a company’s taxable profits.

Ahead of a Spring Budget analysis for ContractorUK of new and existing tax measures affecting directors, a Twitter user said the two proposals were like Hunt’s energy bill help extension – 'not with contractors in mind, but in a bereft Budget, we will take it nonetheless.'

“The extension of the Energy Bill Relief Scheme for a further three months could…help as many as 350,000 small companies avoid becoming insolvent this year,” estimated legal advisory Primas Law.

At IPSE, policy director Andy Chamberlain reflected: “The cost of domestic energy is among the top concerns for the hundreds of thousands of freelancers who work for their clients from home; today’s [extension] will be a welcome reprieve for many home-based businesses owners.”

'Nothing specific for contractors'

But if an extension of an existing energy bill support policy (until June 2023) is among the highlights of Budget 2023 for contractors, that says it all to accountancy firm DNS Associates.

“What [we got from Hunt makes for a] quiet budget for contractors – because there was nothing specific for contractors,” the firm said.

DNS’s managing director Sumit Agarwal added that the chancellor informally entitling it a ‘back-to-work Budget,’ might make contractors think it holds some relevance for them.

The Association of Recruitment Consultancies clarified: “We certainly welcome all the measures [like Returnerships] to bring more people into work, whether younger or older, not only given the scale of the labour shortages in the UK but also for our social well being.

“This should benefit the employment sector as well as those currently out of work.

“However we fear these measures will take time to become effective and so, in the absence of an immediate relaxation of right to work rules to allow more non UK workers to participate in our labour market, businesses may remain hampered by the limited availability of skilled and non-skilled workers for a good time to come.”  

'Not a technically bad Budget'

In that sense, while Budget 2023 isn’t bad for contractors, it’s hard to frame it as good either according to Carolyn Walsh, a tax and PAYE adviser.

“It wasn't technically bad. The chancellor had the usual focus on tax avoidance and tackling labour supply shortages by making it easier for companies to hire workers.

“But there was no mention of regulating umbrella companies, no mention of ensuring that employment laws in the temporary labour market are actually enforceable, and no mention of funding HMRC to bring its ailing customer service up to scratch. So,” Walsh concluded, “we got a totally wasted-opportunity-Budget.”

To ReLegal Consulting, those omissions are grave, and do tip Spring Budget towards being a failure – politically at least.

'Hunt has a lot on his plate'

The law firm said: “It’s a great shame that the party for business – the Conservatives -- does not appear to directly recognise the nearly five million people who are small and micro businesses.”

“He's got a lot on his plate,” an empathetic Janet De-Havilland said of Mr Hunt, trying to make sense of his announcements and non-announcements.

Boss at Pendragon Consultancy, De-Havilland summed up: “Budget 2023 is about growth holding steady, not tax cuts; help with childcare, the creation of new investment zones, increased corporation tax for business, increased pension allowances and additional support [with] energy bills”.

'Angry'

Less sympathetically, a worker at a cloud accountancy company preferred: “On the face of it, Spring Budget looks like a bit of a damp squib for contractors, freelancers and anyone else who runs a small business.”

Louise Rayner, boss at NumberMill went further. “This [wasted opportunity] makes me angry really," she says. "There’s nothing really here for business, unless you’re in very niche sectors -- what enterprises wanted like reduced corporation tax, simply got ignored.”