Last week Chancellor Rishi Sunak delivered the Spending Review 2020. The document contained a calculation that his decision to delay private sector IR35 reform by one year has cost the government £740million in lost tax revenue. Contractor bodies have expressed shock that the government is placing this projected loss at the feet of limited company contractors who they suspect of operating as employees.
It’s been suggested that this calculated loss is the reason that government has allowed many contractors working via a limited company to fall between the cracks of the coronavirus support schemes. Some 700,000 limited company owner-directors have missed out on coronavirus support this year as remuneration from dividends is not covered by either the furlough scheme or the Self-Employment Income Support Scheme (SEISS).
Market labour statistics clearly show the alarming consequences as the number of self-employed continues to decline. Contractors are increasingly being pushed into both PAYE work, or even into the benefits system. Research published in the Times and the Independent shows that the number of self-employed on Universal Credit has risen by 341 per cent since the start of the pandemic, with 1.05 million forced into debt and 1.23 million having to use up their savings. This has been criticised as short sighted when the government are looking to encourage microbusiness and entrepreneurship to kick-start the economy.
However, the Spending Review 2020 contains no new financial help for limited companies, despite a scheme to help them through the pandemic being outlined in detail to HMT just last week. The government had said the potential for fraud made it difficult to identify dividend income paid to directors in lieu of work, as opposed to that received from a passive investment. Although a new proposal drawn up by the FSB and ACCA would have minimised this risk, Sunak chose to steadfastly look the other way.
Referring the Chancellor to the Directors Income Support Scheme (DISS) and limited companies, the SNP’s Alison Thewliss said Mr Sunak ought to apologise for knowingly leaving behind three million people (according to ONS data). However, the Chancellor refuted the charge, stating: “Of those people, 1.5million are not majority self-employed... The median amount of self-employment income that they have is between two and three thousand pounds…. At that level, the Universal Credit system and other support will be significant in making up the difference.”
For many representing the independent sector, the Chancellor’s statement clearly indicates his negative views on limited companies. Government has already confirmed its intention to carry out IR35 reform next year. Those who were hoping for further negotiation in the light of the pandemic will need to face facts – IR35 reform is coming in April.
This content has been supplied by IR35 Guru
Contractors, businesses and agencies are now advised to use the remaining time until April 2021 to prepare for the changes ahead. Umbrella Exchange has a wide range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 393 3881