How can a once entrepreneur-turned-Chancellor sit comfortably with the “immorality of IR35’s double-taxation”? This is just one of the concerns that the UK’s self-employed, umbrella company workers and those advocating for their rights are hoping will be addressed in the March Budget.
Before entering Parliament, Jeremy Hunt, the UK’s current Chancellor, was an entrepreneur who set up two successful businesses overseas while living in Japan. The first was a technology marketing and PR consultancy later sold to UK-based Whiteoaks Consultancy. The second was an education publishing business, Hotcourses.
But now that he has cashed in and left the life of the self-employed and entered politics, his tax policies arguably show little signs of being small pro-business, at least that is what many freelancers, contractors and solo self-employed entrepreneurs are feeling right now.
But one must ask, would Mr Hunt be as successful if he, for example, was setting up that consultancy in 2023 and in the UK? Would the limited company directors-cum-consultants trying to build their client base be penalised under IR35/Off-Payroll rules? We may never know, but I am sure freelancers out there will have their opinions on the matter.
So, what can Mr Hunt do to show that the millions of solo self-employed in the UK are not in fact the Treasury’s easy tax grab, but the key to economic growth? The self-sufficient skilled workers that help fast-track growth in companies thirsty for specialised, seasoned and flexible talent? The workers who are not looking for a handout, just a general appreciation of their contribution and in the case of Off-Payroll workers, more protections.
Seb Maley, CEO of Qdos, an IR35 specialist and insurer for the self-employed has a few thoughts on the matter. He is urging the Chancellor to:
- Address the ‘double-taxation’ of IR35 under the off-payroll working rules
- Overhaul HMRC’s IR35 tool (CEST)
- Instate an independent appeals process for contractors to challenge incorrect IR35 status assessments
- Abandon the rise to Corporation Tax, which will rise from 19% to 25% and is due to come into effect in April
“It’s a case of now or never for this government,” says Maley. “The Chancellor has a clear choice. Hit the self-employed with another round of dangerous tax hikes or protect independent workers. The smallest businesses hold the key to economic growth, yet it’s these enterprises that continue to bear the brunt of an increasingly hostile tax landscape.
“Shelving the incoming Corporation Tax increase would be a start – as would reversing the off-payroll rules, even if the chances seem slim. At the very least, if the government insists on keeping these rules then the key issues which plague the deeply flawed IR35.
“The double-taxation of IR35 is immoral”
“For starters, the double-taxation of IR35 is immoral,” says Maley. “If a business is handed a tax bill for non-compliance, HMRC ignores that tax has already been paid under the engagement by the contractor – it means HMRC nets much more than it should,” he says.
“Added to this, contractors find it incredibly difficult to challenge an incorrect IR35 status decision made by their client, who is under no obligation to take this appeal seriously. An independent appeals process would pave the way for thousands of contractors to overturn inaccurate IR35 assessments,” says Maley.
“Then there’s CEST. The government’s very own IR35 tool isn’t fit for purpose and poses a real risk to IR35 compliance, rather than ensuring it. It needs a major overhaul,” he says.
Naming and shaming just isn’t enough
Some MPs are hoping that something will be done to put an end to the forced enrolment of temp workers and freelancers into the unregulated umbrella company sector.
Back in late February, it was reported by a source that at a BEIS Committee meeting in The House of Commons, Mark Jenkinson, MP for Workington reiterated that “IR35 has created a business of tax avoidance by certain umbrella operators.”
The response by Kevin Hollinrake MP, according to a source, suggests that “measures will be introduced shortly, perhaps signalling as soon as this month’s Budget, to help stop a race to the bottom.”
Addressing Mark Jenkinson’s comments, Kevin Hollinrake, MP for Thurston and Malton and Parliamentary Under-Secretary of State for Enterprise, Markets and Small Business said according to the source that he relayed that he had a meeting on the topic just the day before with his counterpart in the Treasury.
The source reported that Hollinrake said at the time, “We are both keen to move this forward very quickly. You will be hearing an announcement very shortly in terms of what we intend to do. You will hear the outcome in terms of the evidence base we have so far. We will be making our response to that clear very shortly afterwards…. …we are keen to make sure we have more control over what some of these organisations are doing.”
Some people are hoping for some movement of the Call for Evidence into the umbrella sector and its link to tax avoidance schemes, often disguised so that contractors are not aware of their alleged dodgy tactics.
Are the unregulated days of umbrella companies coming to an end?
“Does the response in this latest House of Commons debate mean that we will finally hear the Government’s response to the Call for Evidence into the umbrella sector that closed over a year ago?” asks Dave Chaplin, CEO of tax compliance firm IR35 Shield in response to the BEIS meeting discussions.
“Over the last few years, since the roll-out of the Off-payroll legislation, the “Wild West” has continued to operate and we have seen an increasing number of tax avoidance schemes and reports of workers becoming victims of payroll fraud,” says Chaplin.
“There are estimated to be around 700,000 people working via umbrella companies, representing billions of pounds flowing through an unregulated sector. The sector has a history of reports of [umbrella company] bad behaviour, ranging from blatant tax evasion to skimming schemes akin to when the mafia ran Las Vegas,” he says.
“Despite the Treasury being warned about this before the IR35 reforms came in, government importance on this issue has fuelled non-compliance,” warns Chaplin.
“The ‘Wild West’ needs taming. It is causing untold damage to the contracting market whilst the perpetrators of the schemes are thriving and not being held accountable,” he says.
“To date, all we have is HMRC naming and shaming the dodgy dealers long after they have run off with the loot, leaving taxpayers to pick up the tab,” says Chaplin.
ICAEW’s Insights page has reported that HMRC has updated its off-payroll working rules GOV.UK guidance. However, the new overview page – understanding off-payroll working (IR35) – that links to the other more specific pages does not make for easy reading. For example, the ICAEW said, “those pages also contain an increased number of cross-references to the relevant sections of technical guidance in the Employment Status Manual.”
Will there be tax cuts or a windfall tax on energy companies?
In a February Parliamentary debate, Jeremy Hunt said: “What I can confirm is that there will be no tax cuts funded by borrowing. I can also confirm that those of us on this side of the House, unlike those on the Hon. Member’s side believe in lower taxes.”
But it looks like tax breaks on business investment will likely be geared up for big business, such as any working in the energy transition and renewables sector, which will include gas and oil heavyweights, which some opposition party members believe should be lobbed with a windfall tax.
It is looking unlikely that such a windfall tax will come to fruition in Hunt’s March Budget. But in recent news, the Labour Party is considering public ownership of zero-carbon energy transition projects to save jobs now and in the future.
Keir Starmer, The Labour leader, has expressed that if Labour gets voted into majority power, it will create a publicly owned energy company called Great British Energy to invest in clean UK power. Labour is yet to flesh out details of the plan, said The Guardian.
Raising business taxes is never the way to stimulate an economy and deliver growth. It puts boardrooms on edge, and it makes investors think twice about their next move. I know, I’ve been in those discussions.CBI President Brian McBride
Many company owners were pinning on growth to stem from a corporate tax break instead.
CBI President Brian McBride said in an article in The Telegraph: “If there’s one thing I’ve learned throughout my career in business, it’s that raising business taxes is never the way to stimulate an economy and deliver growth. It puts boardrooms on edge, and it makes investors think twice about their next move. I know, I’ve been in those discussions.”
“After a turbulent few years, investors are keeping their cards close to their chests when it comes to investment intentions. With all eyes on the Spring Budget, my sense is that pragmatic business leaders will only wear that hike in Corporation Tax rise if the other sums add up. Without an incentive alongside, then April will just see a damaging hit to UK competitiveness.”
Other welcome cuts
FSB has called on the Chancellor to scrap a planned rise in fuel tax in the Spring Budget. The FSB said it is looking like there will be a jump in fuel tax by 23 per cent to 12p a litre but FSB research shows that this “could have big consequences for small firms.”
Without Government intervention, the FSB says “small firms will be facing the highest rise in fuel duty in 12 years.”
More than half (54%) of firms who saw a rise in business costs blamed fuel as one of the main causes, said FSB.
Its National Chair Martin McTague said: “If fuel duty rises as planned, it would represent a missed opportunity to remove one of the obstacles that will hinder growth. Small firms are already struggling with a cost-of-doing-business crisis, led by rampant inflation and high energy bills. This is the worst possible time to pile on extra taxes.”