While it’s still early days, contractors might want to save the date on Wednesday 3rd March when Chancellor Rishi Sunak will deliver the Budget. While there’s still much economic uncertainty, the £400bn deficit in public funds created by coronavirus support is a stark reality that needs addressing. This makes the Budget critical in drawing up the first stages of an actionable recovery plan.
The government’s initial statement announces the Budget as “the next phase of the plan to tackle the virus and protect jobs”. With no specific mention of tax policy, there are those who are hopeful that the Chancellor might put off some of HMT’s most unpopular legislation. Chief among the hopeful will be contractors hoping for another reprieve of the IR35 reforms scheduled for April 6th.
It’s been a difficult year for contractors, who have mostly found themselves ineligible for the various support schemes. Many have had to rely on personal savings, but with the pandemic dragging on, contractors could be left high and dry when their funds run out. While Sunak faces increasing pressure to implement the DISS scheme, he’s been resolute in not throwing company directors a life line. He’s also remained steadfast on the need for IR35 reform to prevent losses in tax revenue due to noncompliance, and many feel that there’s an obvious link here.
While there’s general opinion that the flawed IR35 reforms will create more problems than they will solve, the government’s primary concern right now is balancing the books. The spending review estimated that delaying the reforms by a year has cost HMT around £740m in lost tax revenue. With the Treasury having to dig even deeper into the coffers, not least to find more funds for the NHS, it’s seems unlikely that they’ll delay reform again.
Not only will delaying merely postpone the inevitable when many companies have already had to undertake costly IR35 assessments, there’s simply nothing to replace the IR35 legislation. The government will be tied up with Brexit details and dealing with subsequent outbreaks of coronavirus, which means that drawing up new employment legislation won’t be top of their agenda for quite some time.
Many contractors have also readied themselves for reform and closed down their limited companies. Data from The Gazette, the UK’s official public record, showed that a record number of UK company directors closed solvent businesses in the three months to September 2020. This was also the case when the government introduced IR35 reform to the public sector in 2017.
Also fuelling the closure of limited companies is speculation surrounding Capital Gains Tax (CGT). An Office of Tax Simplification review commissioned by Sunak recommended that the government should consider aligning the CGT rate more closely with income tax rates. This could see CGT set a maximum rate of 40%, which could raise around £14bn for the Treasury. As part of its package of suggested reforms, the OTS has also advised the government to think about taxing earnings retained in companies by owner-managers as income. Another suggestion was scrapping the Business Asset Disposal relief, which fixes CGT at 10 percent when a business owner is disposing of their company. This means that many contractors are faced with decision of whether to liquidate now, or risk incurring losses.
With contactors providing the agility business so desperately need right now, plus a means for many skilled workers to keep working after redundancy, the Chancellor faces some hard decisions when it come to the March Budget. While the country needs funds, putting contractors out of business with zero support and increased taxes won’t help – not least as it will place additional strain on the benefits system. It’s hoped that the Chancellor will balance these concerns when it come to March 3rd.
For more on the latest economic indicators and hiring news, see our article here. If you’re starting a new contracting role, Umbrella Exchange have access to a wide range of hassle-free services that can help you with setting up a limited company or finding the right umbrella company for you. To talk to a member of our team, call: 0203 393 3881
