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Chancellor can ‘transform’ contracting landscape in Spring Budget

IPSE calls on government to introduce measures to support self-employed

 

Ahead of the Spring Budget on 15th March, the Association of Independent Workers and the Self-Employed (IPSE) has called on the government to deliver a fiscal plan that will support the self-employed.

As a sector of the economy worth almost £280bn in 2022, the self-employed workforce contributes considerably to the UK’s economic figures. However, independent workers have been the target of tax raids at successive budgets, with IPSE labelling the recent fiscal announcements “something to be feared by contractors”.

A number of fiscal measures announced in October 2022 are due to come into effect in April this year, including the delayed increase to Corporation Tax – rising from 19% to 25% – a reduction in the tax-free dividend allowance, and the cutting of entrepreneurs’ relief. 

IPSE has written to the Chancellor, Jeremy Hunt, outlining its recommendations that can play a “potentially transformative role for self-employment” while supporting the sector throughout the challenging economic circumstances.

 

“More proportionate” off-payroll rules

IPSE has campaigned consistently for reviews of IR35 reform and “supported the previous Chancellor’s announcement that the 2017 and 2021 reforms would be scrapped”.

Since the government U-turned on this promise, the body has “urged government to reconsider its reversal… and instead consider some of the alternative approaches drawn up by IPSE”.

One of those suggestions is “more proportionate” IR35 rules, to make self-employment both more attractive and more accessible to the economically inactive.

Citing its recent Self-Employed Landscape 2022 research, IPSE highlights the impact of the off-payroll rules, with 11% of contractors planning to retire early as a result of the introduction of IR35 reform in the private sector in 2021 and 6% planning on quitting contracting.

Reforming or repealing IR35 would encourage those workers back into employment, IPSE argues, improving the UK’s productivity metrics and increasing tax revenues for HMRC, too.

 

Increase the VAT threshold

The VAT threshold is currently set at £85,000, and businesses exceeding this level of income must register for VAT. IPSE calls this “a cliff edge” that disincentivises self-employed workers to earn over the threshold. 

This is enforced economic inactivity, says IPSE, and the association has called on the Chancellor to increase the threshold to £100,000. Doing so would give the self-employed some additional earnings headroom and adjust for “punishingly high levels of inflation”.

 

More generous trading allowance to boost self-employment

With inflation having put household budgets under pressure, IPSE research indicates that casual self-employment has increased. However, people turning to side hustles to generate additional income are hampered by a low tax-free trading allowance. Currently, the allowance is just £1000.

The budget presents the government with an opportunity to “harness the potential of this increased interest in casual self-employment”, says IPSE.

As a result, IPSE has recommended to the government that it increases the allowance to £5000, both to give workers more breathing room during the downturn and allow them to explore “the formative stages of what will later become a fully-fledged self-employed enterprise”.

 

MSC legislation due a review

Managed Service Company (MSC) legislation was introduced in 2007 to tackle tax avoidance among contractors whose accountants managed their companies. But recent compliance activity has sent shockwaves through the contracting community, says IPSE.

As a result of these recent determinations (which have come as “an enormous surprise”), IPSE has requested that the government reviews MSC legislation. This would “ensure that enforcement is proportionate and in line with the intentions of the legislation” to protect contractors from misapplication.

 

Offering older workers new savings vehicles

With the Self-Employed Landscape 2022 report finding that workers aged 60 or over account for 21% of the self-employed population, IPSE is urging the government to offer savings opportunities to those workers who may already be accessing their pensions.

Adjusting the age threshold and limit of the Lifetime ISA (LISA) would enable older workers to “continue saving in a way that is rewarding and flexible” while also bringing these individuals back into economic activity – something that the Chancellor wants to achieve.

1 Comment

  • Nwv says:

    Tax Raid? I think escaping NI contributions is a better description of the underlying problem and, generally,vwhat IR35 sets out to resolve, especially through the smart idea of client-led enforcement. We need the higher paid workforce paying tax and not avoiding it.

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