Autumn Statement 2023: Freelance tech sector in 11th hour appeals to chancellor Jeremy Hunt
Jeremy Hunt will deliver his second Autumn Statement this coming Wednesday, with potential implications for Free-Work readers.
In September 2023, the chancellor warned that it would be “virtually impossible” for him to unveil tax cuts at his ‘AS’ on November 22nd.
But after the UK economy emerged as flatlining between July and September according to the ONS, Mr Hunt instead promised ‘An Autumn Statement for growth.’
‘Do away with IR35 reform’
His rethink comes after David Davis MP used a Sky News interview to urge modest tax cuts such as, he said, ‘doing away’ with IR35 reform -- which would boost IT contracting.
Sir John Redwood, another Tory colleague of Mr Hunt’s, similarly used an interview (with LBC) to call for growth measures, and he too backed repealing the off-payroll rules.
Outfits supplying the UK tech sector, like VIQU and Matchtech, and tax and freelancing experts like IPSE, LITRG, Brookson and Bauer & Cottrell, have all shared their own AS wishes, exclusively with Free-Work.
And their collective hopes for Autumn Statement 2023 match many of those expressed by Mr Hunt’s Tory colleagues.
‘Chancellor, let people keep more of the money that they earn’
Those colleagues now include Dame Priti Patel, who has told the chancellor he should safeguard take-home pay (allow people “to keep more of the money that they earn”), which is a major draw of IT contracting.
But speaking yesterday to Free-Work, Matt Fryer, Brookson’s managing director, moved to manage expectations -- even Sir John’s and Mr Davis’s.
“With a general election likely to take place in the summer/autumn of 2024, it will be interesting to hear what legislative changes may be proposed between now and then.
“My eye is on the proposed updates to the umbrella [regulation] consultation and the off-payroll rules’ set-off. But, I fear, a repeal of IR35 [reform] altogether, seems unlikely.”
The mere fact that HMRC has diarised the set-off -- a mechanism that will stop double-taxation under IR35 -- from April 6th 2024, makes the rules’ repeal seem impractical.
‘IT contractors could be drawn away from umbrella companies’
Not that contractor accountant Mr Fryer believes the UK’s IT freelancers face a gloomy future.
“Many IT contractors lying outside IR35 have been forced to work under umbrellas by risk-averse companies who were worried about tax liabilities. However, if the proposed updates are implemented, this could change, drawing IT contractors away from umbrellas altogether,” he began.
“And I fully expect the off-payroll offset changes to take effect on April 6th 2024, and am hopeful draft legislation will be published on or around November 22nd’s Autumn Statement.
“These changes would increase hirers' appetite for working with IT contractors lying outside IR35 -- and they could remove any outstanding ‘blanket bans’ [on limited company IT workers],” he said. “This removal would meet the rising demand for highly skilled IT roles.”
‘Fruitless IR35 reviews, HMRC’s assertion of off-payroll success’
Fryer caveated that the King’s Speech earlier this month omitted any Employment Bill --which would contain umbrella regulation – so the “umbrella changes may be on hold.”
Bauer & Cottrell is an IR35 advisory which believes the April 6th 2017 off-payroll rules in the public sector, and the April 6th 2021 rules in the private sector, should be repealed.
But the advisory’s senior tax consultant Charlie Hemsworth acknowledges that it is “more realistic” that Mr Hunt won’t repeal the rules, not least because he cancelled his predecessor’s attempted repeal of both frameworks only 13 months ago.
Hemsworth suggested that even though repeal would boost IT freelancing, “HMRC’s resounding assertion of the rules’ success” is reason enough to prepare for the two frameworks not going anywhere.
She also pointed to “seemingly fruitless reviews” of IR35, the off-payroll rules and personal service companies, which, even though they unearthed numerous issues, haven’t led to the rules’ removal.
‘Might be little to enthuse contractors and the self-employed on Nov 22nd’
The Bauer & Cottrell consultant told Free-Work: “Pair this, with the constraints of Hunt's tightened purse strings, and the outlook suggests that unfortunately, there might be little to enthuse contractors and the self-employed on November 22nd.”
But another status advisory, Qdos, says the government is running out of time to secure the ‘freelance vote’ -- and Wednesday represents a nearly last-ditch opportunity for it to act.
“The government is on the verge of burning all bridges with the self-employed workforce… [just as] time is running out for the Conservative party.
“With a general election on the horizon, it’s going to take something big to convince the self-employed that the current government have their best interests at heart,” Qdos said. “It’s arguably the last chance saloon.”
‘Hunt should fix the problems that plague the IR35 legislation’
The advisory’s CEO Seb Maley added: “[So] Autumn Statement presents the opportunity to reduce the tax burden -- whether that’s rolling back on the recent corporation tax hike or fixing the problems that plague the IR35 legislation.”
And ‘problems’ might actually be to understate it – abject confusion more like -- according to Matt Wragg of STEM recruitment agency Matchtech.
“Many businesses and contractors find understanding and complying with the off-payroll rules challenging and, while there have been some reviews, it remains one of the hardest pieces of tax legislation to understand,” Mr Wragg, Matchtech’s CEO told Free-Work.
‘UK needs a regime and system that works for everyone’
In a statement last night, the technology recruitment boss added: “This has resulted in blanket bans and forcing contractors into false employment, in many cases without the benefits of employment status.
“Businesses need a regime that is unambiguous over employment status and a tax system that supports the use of flexible labour -- which has been a positive market differentiator for the UK for many years. We need a regime and a system that works fairly for everyone.”
Founded with the aim of abolishing IR35, the Association of Independent Professionals and the Self-Employed (IPSE) couldn’t agree more.
‘Chancellor must unpick harmful tax rules’
And yesterday, the association sounded hopeful Mr Hunt might at least make an acknowledgement on Wednesday.
“With the self-employed sector still far below its pre-pandemic strength, we’ve urged the chancellor to unpick the harmful tax rules that continue to deter new and returning freelancers.
“The off-payroll working rules…have turned tax compliance from a headache into a nightmare for freelancers and contractors,” IPSE’s head of policy Andy Chamberlain told Free-Work.
“If the government’s aim is to grow the economy, it needs to look at how its own rules are working directly against them.”
Chamberlain also said HMRC’s Managed Service Company legislation warrants scrutiny too, as it poses a disproportionate “threat” to freelancers and their advisers, like accountants.
But across most areas of freelancer accountancy, a tax charity says it has more modest hopes for Autumn Statement 2023.
‘Autumn Statement 2023 ought to provide MTD income tax clarity’
“We hope next week’s Autumn Statement will finally provide clarity as to who will be required to comply with HMRC’s flagship Making Tax Digital for income tax programme, when it goes live in April 2026,” LITRG’s Sharron West began in a statement to Free-Work.
“For individuals who have annual turnover of £30,000 or more from self-employment and/or rental income, it will eventually be mandatory to use MTD-compliant software for business records and submit updates of income and expenses to HMRC -- at least four times per year.”
West says the government has been reviewing whether businesses with turnover between £10,000 and £30,000 should also be in scope of the new MTD for income tax rules.
Having campaigned on the issue, LITRG is hopeful Mr Hunt will confirm the very smallest traders to be exempt.
The tax charity pointed out that MTD for income tax will not apply to limited company directors or umbrella company workers, “unless they have rental income or other self-employment income above the turnover threshold.”
West added: “It is likely that Making Tax Digital for corporation tax will eventually be introduced [too.] Although it is several years away yet, and of course, MTD for VAT is already with us, for all VAT-registered entities.”
‘Make ISAs work in freelancers’ favour’
Facing hefty tax and admin burdens now, or potentially in future, some freelancers will hope the chancellor allocates more resources to how their hard-earned cash can be stashed tax-free.
“A potential revamp of the UK’s current suite of Individual Savings Accounts has already featured heavily in pre-Autumn Statement speculation,” says IPSE’s Mr Chamberlain.
“We want Mr Hunt to use this window of heightened interest in these products to make them work in freelancers’ favour -- particularly the Lifetime ISA.
“Increasing the age limit on contributions, and reducing the penalties for accessing savings in times of need, would see LISA uptake and appeal among the self-employed, soar.”
‘Exempt small companies from up to 25% corporation tax rate’
But it’s another financial area -- affecting the bottom line of contractor limited companies it places in the tech sector -- that IT staffing firm VIQU believes any fair chancellor wouldn’t ignore.
“One reasonable hope, although it might be pie in the sky based on recent government policy, is to exempt ‘small companies’ from the [up to] 25% corporation tax threshold and keep it at 19%,” the firm’s boss Matt Collingwood told Free-Work.
“Mr Hunt said over the weekend that one way out of the current [fiscal] challenge is to ‘grow the economy,’ and small companies are the engine of that growth, including 4.24 million contractors and self-employed people in the UK.”
‘Prove me wrong on IR35, chancellor’
Unprompted, Collingwood then volunteered there’s something else he knows all contractor job candidates probably want even more than the up to six per cent tax cut in their corporation tax bill which he recommends.
“Do I anticipate the chancellor will announce a U-turn of his October 2022 IR35 U-turn fiasco [when he went back on the government’s decision to repeal the off-payroll rules]?” he asked. “No chance. Sadly. But previous chancellors have pulled a rabbit out of the hat, so you’re very welcome to prove me wrong, Mr Hunt.”