Chancellor of the Exchequer Jeremy Hunt. Picture by Andrew Parsons / No 10 Downing Street
THIS ARTICLE HAS BEEN UPDATED
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- The new Chancellor, Jeremy Hunt, has revoked the repeal of the Off-payroll rules that were introduced in 2017 and 2021 to the public and private sectors. Read reactions below
- IPSE is concerned the scrapped appeal over IR35 reforms will lead to yet more work being off-shored to other territories and more people being forced to work through unregulated umbrella companies.
- Over the weekend, there were reports that the basic rate income tax cut from 20% to 19% could be delayed for a year – reverting to Rishi Sunak’s original timetable – and announced on 31 October.
- Jeremy Hunt, the current Chancellor, said on Saturday that tax cuts would not come as swiftly as expected and that some taxes would rise.
- On Friday, Liz Truss announced that Corporation Tax would rise to 25% in April – reversing the plan to keep it at 19%.
- The previously announced small profits rate of Corporation Tax will be maintained. Smaller or less profitable businesses will not pay the full 25% rate, and companies with less than £50,000 of profit – the large majority – will not see any increase at all, continuing to pay Corporation Tax at 19%. Those making over £50,000 may see a marginal tax rise.
- It comes less than a fortnight after the first tax u-turn – reversing the plan to abolish the additional 45% rate of tax.
- The Chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.
- He will also make a statement in the House of Commons this afternoon.
- The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.
Source: Hargreaves Lansdowne
On Friday, Liz Truss announced that Corporation Tax would rise to 25% in April – reversing the plan to keep it at 19%. However, many freelancers may not have to sweat just yet. The previously announced small profits rate of Corporation Tax will be maintained. That means smaller or less profitable businesses will not pay the full 25% rate, and companies with less than £50,000 of profit – the large majority – will not see any increase at all, continuing to pay Corporation Tax at 19%. Those making over £50,000 may see a marginal tax rise.
The Bank of England is nearing its end of gilt market operations, which it says have enabled a “significant increase in the resilience of the sector”. However, some wealth managers like Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management, believe that recently appointed Chancellor of the Exchequer, Jeremy Hunt, could be prepared to make the mother of all t-turns on the mini-Budget.
“There is the expectation of more fiscal measures to come over and above the U-turns,” says Dragoumis. This has been timed to coincide with the end of the Bank of England’s bond-buying programme and it seems to be working. Sterling was rallying strongly Monday morning and bonds were up. A Truss resignation and more “adults in the room” will also be welcomed by markets.”
Philip Dragoumis, Thera Wealth Management
Riz Malik, director of Southend-on-Sea-based R3 Mortgages, is also preparing for more stringent measures that could impact our mortgages.
“The Bank of England’s operations over the past week or two have not led to an increase in the resilience of the gilts market,” says Malik.
“They have led to the survival of that market. As the lender of last resort and with their function to maintain market stability, this may not be their last intervention. They may be called upon again to clean up this hapless Government’s mess,” he says.
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Sarah Coles, senior personal finance analyst, Hargreaves Lansdown thinks another u-turn could “put the tattered mini-budget through the shredder”, as the latest Chancellor considers pushing the basic rate income tax cut back to its original timetable.
“It could be the third dramatic reversal executed in a frantic effort to reassure the markets. It’s all adding to a pervading sense of uncertainty,” says Coles.
Coles notes that the u-turns may have been enough to restore market calm, for now, saving the government £25bn. However, she fears the uncertainty of future last-minute changes is detrimental to anyone trying to make sense of their tax position.
More potential changes add to a pervading sense of uncertainty – over not just the personnel in key political positions, but also the direction of policy, and whether anything that’s announced right now is worth the teleprompter it is written on.
This makes it incredibly difficult for us to build robust financial plans tailored around current taxation, and reveals the strength in being able to build your own tax certainty.
Sarah Coles, Hargreaves Lansdown
Coles says if you are looking for ways to decrease your tax bill, there may be some options to consider.
She says in some cases, the government will let you give up a portion of your salary, and spend it on certain things free of tax (and in some cases national insurance). This includes pensions, childcare vouchers, bike-to-work schemes, and technology schemes.
“This won’t boost your take-home pay, but will cut your tax bill – and offers the certainty that for this portion of your salary at least, there will be no income tax to pay,” says Coles.
Lack of stability: it could mean more fiscal changes
Wes Wilkes, CEO at wealth managers IronMarket is not convinced those running the country are equipped for the job and reminds us that markets often rule stability and not the Bank of England.
“I don’t believe the current administration have any idea what they’re doing. What’s more, they and the Bank of England aren’t the ones that will decide whether the stability is real or not, the markets will. Sterling seems a tad stronger overnight but the Gilt selling was strong on Friday. I fear lasting damage to a country that is a net borrower. Welcome to an emerging market economy.”
Wes Wilkes, CEO, IronMarket
Even the columnists are making their predictions over who will swoop in and take over Liz Truss’s place at No. 10. Stephen Bush, political columnist at the FT had this to say today ahead of the measures set to be announced today:
In real terms, Liz Truss’s premiership is over. In nominal terms, it may limp on for a while yet. The UK’s real terms prime minister, Jeremy Hunt, will announce a swath of measures at 11am this morning in a bid to calm markets.
We all know the problem by now: Truss’s unfunded tax cuts created a £60bn hole in the public finances, thanks to a combination of the tax cuts themselves and the higher interest rates triggered by the market reaction to those tax cuts.
IR35: the never-ending saga continues
Andy Chamberlain, Director of Policy at IPSE, did not hold back his disappointment of the news that the IR35 reform appeal that was announced just weeks ago has now been scrapped.
“Today’s announcement will be a huge blow to thousands of self-employed contractors and the businesses they work with,” says Chamberlain. “The reforms to IR35 have created a nightmare for businesses seeking to engage talent on a flexible basis, while simultaneously forcing individuals out of business altogether.
We know that the government is well aware of the problems caused by this damaging legislation – the previous Chancellor said so at the mini-budget and the Prime Minister made it clear during her leadership campaign. Despite this, it has today taken the spineless decision to row back on its promise to repeal the reforms.
Andy Chamberlain, Director of Policy at IPSE
He continues, “Businesses that were looking forward to an era of less complexity and less cost will have had those hopes dashed today. Our fear is this decision will lead to yet more work being off-shored to other territories and more people being forced to work through unregulated umbrella companies. The supposedly pro-business Conservative government has sent out a clear message today – it does not support people who work for themselves.”
Fred Dures, founder of PayePass, sees the scrapping of the IR35 reform a move in the wrong direction.
“Scrapping the IR35 reform repeal shows massive oversight. Panicking and backtracking on the promise to abolish these changes won’t have the desired effect. In fact, U-turning on this pledge is likely to lead to more problems.
“IR35 reform has caused unnecessary complexity, leading to major issues for contractors, recruitment agencies and the businesses engaging these workers. It has seen a tidal wave of tax avoidance schemes entering the market – ones that lure in unsuspecting contractors and pose a huge threat to the entire supply chain.
“By keeping IR35 reform in place and not delivering on promises to regulate the umbrella industry, this see-sawing government is failing the flexible workforce.”
The Chancellor’s move to revoke the repeal of the Off-payroll rules that were introduced in 2017 and 2021 to the public and private sectors, is also unsettling for Dave Chaplin, CEO of tax compliance firm IR35 Shield:
“The government’s initial commitment to repealing the Off-Payroll rules was a sensible initiative and would have been a significant step forward for the UK’s army of self-employed people who are critical to the Government’s pro-growth agenda.
“Repealing Off-payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, Off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.
“Whilst we agree that tax avoidance measures are sensible, the Off-payroll rules over-extended, causing genuinely self-employed contractors to lose their rights to being their own boss.
“The Conservatives U-turn on the repeal has thrown around half of the genuinely self-employed contractors under the bus, and likely kissed goodbye to their success at the next General Election.
“With the anti-growth effects of Off-payroll, it appears the pro-growth Conservatives have now joined the Anti-Growth Coalition – as the saying goes ‘we are all in this together’.”
Also commenting, Crawford Temple, CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance said:
“The Off-payroll rules that were rolled out to the public and private sectors in 2017 and 2021 were ill-thought-through and damaging for the UK economy. It would appear that the Government also recognises this by announcing the repeal. However, that repeal is now not proceeding. The OPW rules were built on already fundamentally flawed IR35 legislation and so we now call for a considered approach and a proper review that Liz Truss promised as part of her ministerial campaign.”
Uncertainty looms over those who have hiring power
Matt Fryer, MD of Brookson Group, a People2.0 Company, said “Uncertainty isn’t helpful for hirers or contractors, particularly in today’s economic climate.”
Fryer says: “At least retaining the current off-payroll working rules takes us back to the position we were in a few weeks ago and gives us a bit of certainty. However, it is clear now that the Government acknowledges the current rules aren’t working as expected.
“If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the entire flexible labour market. In the meantime, hirers, recruiters and their supply chains must ensure they are compliant with the rules currently in place. The IMF and markets have strongly indicated that the Treasury must rebalance the books through taxation, so HMRC will be proactively seeking to recoup tax liabilities in the years to come.”
