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‘Draconian’ tax changes will cause huge disruption

Experts warn the Chancellor that ‘draconian’ tax changes would ‘drastically undermine’ a struggling sector

In the last chance saloon ahead of the Budget on 3rd March, professional bodies are urging Rishi Sunak to avoid drastic tax changes and instead protect freelancers and contractors, and help businesses “rescale and rehire” through a long-term strategy.

The Coronavirus pandemic pushed the overall UK deficit to £2.1 trillion at the end of December – the highest debt ratio since 1962. There is now mounting pressure on the Treasury to claw back some of the billions spent on support, and experts fear the self-employed will be a target.

Last year, HMRC delayed controversial IR35 reform in the private sector by one year due to the ongoing crisis. 

IR35 reform to raise £3 billion for Treasury

But just this week the tax watchdog reiterated that the changes will come into effect on 6 April this year, publishing its set of ‘Compliance Principles’. The reform will shift the responsibility for determining a contractor’s IR35 status from the worker to the business engaging them.

IR35 changes are predicted to raise £3 billion for the Treasury by 2024. However, there is a widespread concern among independent workers given some businesses are choosing to stop engaging contractors altogether as a direct result of the reform.

Self-employment trade body, IPSE, dubbed the reform as “draconian” and warned the government of the financial disruption IR35 reform could cause to an already struggling sector.

Andy Chamberlain, Director of Policy at IPSE, said: “The government delayed the changes to IR35 that were due last April because it was clear they would add to the disruption and financial damage the pandemic was causing to the self-employed sector.” 

Pandemic has left contractors in a ‘worse state’

“Today, the situation has not improved: it has worsened. Therefore, it is clear the government should again delay the changes – and preferably take them off the table altogether.”

He added that the pandemic has “financially devastated” many self-employed people and the “sector is now in a worse state than at any point in recent history” with more and more people each month losing their business. 

As well as IR35, the self-employed also face another threat in the upcoming Budget that could make their situation worse, Chamberlain said, and that’s the “risk of drastic tax hikes.”

When Sunak announced the Self-Employed Income Support Scheme (SEISS) last year, he hinted at future tax rises stating “we must all pay equally in the future.” 

Tax changes risk ‘damaging our recovery’

But Tej Parikh, IOD’s Chief Economist, warns that now is not the time to raise taxes.

Parikh said: “With ongoing cashflow difficulties and continued uncertainty around the pandemic, now is not the time to be lumbering businesses and the self-employed with higher taxes. 

“Additional costs for enterprise at the Budget risks damaging our recovery. Instead, the Chancellor should focus on supporting business growth by providing tax reliefs to help organisations to rescale and rehire, and to lift investment in the technology that will drive innovation.”

According to reports, on Sunak’s agenda is levelling up National Insurance Contributions (NICs). Currently, employees pay 12 per cent on earnings between £9,500 and £50,000 and then two per cent above this. Whereas the self-employed pay nine per cent on profits above £9,500 in addition to two per cent on anything above £50,000.

Self-employed need ‘urgent protection’

Raising NICs, a controversial move, to be in line with employees would raise £2 billion for the Treasury, while increasing tax bills for sole traders by £500 if they earn more than £42,000, and £250 if they earn the average of £32,000.

Chamberlain said: “The government should also under no circumstances raise taxes for the self-employed in the coming year. Not only would it be deeply unjust to raise self-employed taxes to pay for support that approximately a third of freelancers could not access: it would also drastically undermine an already struggling sector. 

“Right now, the self-employed do not need tax grabs and draconian rule changes: they urgently need protection, stimulus and a long-term strategy for growth.”

By Contractor Weekly

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15 thoughts on “‘Draconian’ tax changes will cause huge disruption”

  1. Gary Andrews

    Tax hikes on the dying contractor sector are simply a cover for Sunak’s wider tax rises for all workers.

    Expect those who don’t earn their money though work to get a free pass though:
    The trust funded, the heirs, pensioners, non-dom asset owners, the wealthy party donors with their lobbyists, outsourcers, government contracts and think tanks.

    No Covid support for contractors just tax rises?

    Rishi Sunak knows his IR35 legislation is coming to sweep away much of the remaining freelancing industry.

    There will be no revenue to be gained from this. Just a punishment beating for a small business community too educated to bleat support for the (utterly insane) Tory economic policy of recent years.

    “If you will not be turned, you will be destroyed!” – Emperor Palpatine

  2. Geoff

    It may well raise less than HMRC think. I have turned down two contracts from clients imposing blanket inside IR35 terms, preferring to do nothing.
    Both HMRC and I are worse off as a result, but at least I get to enjoy my leisure time.

  3. Mike Dyde

    I work as an IT Consultant, my previous contract ended in December and, since the New Year, I’ve seen the number of advertised contracts fall off a cliff. Companies are still looking for temporary staff but on Fixed Term Contracts.
    Ex-colleagues who have contracted for years are struggling to secure roles which is reflective of the change in company hire policies
    Personally I’ve decided that contracting in the IT arena is going to take a while to settle down, if it ever does, so have thrown in the towel and returned to permanent employment. If there’s a bright side then it’ll be the benefits of paid holidays, bonuses, medical, pension etc….
    I hate being forced into this decision but have accepted it’s the most appropriate way forward for me, I wish everyone who continue contracting the very best for the future

    • Jamie M

      Unfortunately, these Draconian’ tax changes will follow you to the permanent workforce who are the real targets. None of the furlough and all of the payback I’m afraid.

      • Bob

        Hahaha… 3 billion from where, absolute made up lies once again from the Gestapo finance wing and will be based on previous self-assessment returns pre-pandemic.

        They also have no idea whatsoever on what the poorly thought out IR35 rules for the private sector will bring in, in the years to follow. The pandemic has blown up a large majority of businesses and contract jobs that simply won’t now exist.

        Factor in all the large corps who have also been frightened away from hiring contract staff for fear of being stung years down the line with the new dodgy IR35 rules and there will only be a handfull of contractors left in the true sense to harass for more tax.

        Poorly thought out legislation targeting the low hanging fruit once again.

    • Lee

      Lol. Rishi, is that you?

      Non sequitur.

      When your country is hostile to your years of experience and entrepreneurial spirit, the appropriate response is to find a country more welcoming.

    • Ian

      I’ve done the same. Closed my company before things get any worse and now a permie. Shame, I really enjoyed being freelance

  4. Andy

    2 former FS clients of mine asked me to come in and fix some projects. But they were unable to allow a role outside of IR35, their policies no longer allow it. The roles ended up being filled by a competitor country in Europe. Tax loss for the UK. IR35 almost certain to cost tax revenue. Sunak (as an individual) wins, the UK loses.

  5. Onlooker

    Big loss for HMRC, They will certainly loose VAT from limited companies, corporations tax, and personal tax.

  6. M

    It would be more transparent (honest ?) If HMRC would provide the basis for their calculations offset by the cost of their efforts.

    Once comparing like with like it seems unlikely their much touted figures will be realised. By the time this has been proven though it will all be too late of course.

    I suspect they want to shut down contracting so when they start to strip out employment rights now they can, there is nowhere for the permies to go.

    All in all, the UK is going to hell in a handcart – which why we moved to Italy and work as contractors from there.

  7. Peter Stefanovic

    I know how exhausting it is exposing all the lies, the deception, the spin & betrayal perpetrated by Boris Johnson’s Gov’t almost daily. The gut wrenching anger, the rage, often despair, but I absolutely will not accept a Gov’t that normalizes lying. Please join me in exposing it

  8. Glenn Dobbs

    Fantasy world. Not in touch with reality. 3 billion from where? You stiffed the contractors AGAIN. They are all out of work, c,osing their companies in a landslide and no one has any money.

    Factor in the catastrophic Brexit deal, Covid, capital gains tax increase resulting in foreign investment fleeing to greener pastures, impending inflation because of a ban on cheap foreign agricultural labour, no construction, abandoned high rent office towers. Disregard the goverment bluesky con job and examine the facts. The UK economy is an impending trainwreck with no one to hang the bill on.

  9. JHChrist

    Where do they get these numbers ?

    They have not rises that much since IR35 began in 2000’s

    I have been out of contract and unable to secure work now for nearly 12 months I am on UC

    There really is a madness in the treasury and HMRC

    It is probably now just about ego, HMRC lost too many cases

  10. The_Mystic

    Rejoice Rejoice!!!
    At last some common sense on IR35 with the humiliating legal defeat for HMRC in HMRC v Kaye Adams 2021 days ago.

    It appears that the HMRC CEST Tool has been legally discredited. The focus should not be on a specific Contract but on “Contracts as a Whole”. In short what percentage of your turnover (say over the last 2 years) is derived from the Current versus Previous Clients.

    The principle of “IBOYOA” – In Business on your own Account is relevant. Have you formed a Limited Company withit’s own Bank Account etc., which engages with Multiple Clients.

    Even the “Control Issue” was defeated by the concept of “Light Control” being upheld. Meaning, it’s only logical that as a Contractor you deliver in line with the Client’s express requirements, but that is not the same as the Client exerting control over you as if you were an Employee. Here the tests could be, are you subject to 1:1 appraisals, and do you have effective Line Authority over Permanent Staff. This is not the same as being convivial and engaging with Permanent Staff (for purposes of banter, and comradery), as a Team Player. This is not being a “Disguised Employee”.

    Whwn assessing Outside the Scope Status HMRC now need to take a “Holistic View” of the range of Clients & Projects undertaken by the Contractor (operating under “IBOYOA”) , and can’t simply “Box Tick” the terms of a specific contract.

    Hopefully the Kaye Adams ruling is the beginning of the “End of IR35”. Kaye Adams has been run through the CEST Tool and failed the CEST Test, but passed with flying colours in the Appeal Court. The CEST Tool is clearly “Unfit for Purpose” and this has been upheld, and it shines a spotlight on the incompetancy and bullying of the IR35 Division of HMRC.

    Hopefully the “Nightmare of IR35” will soon be over.

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