So, Chancellor Phillip Hammond’s big day has come, with the unveiling of the 2017 Budget this week. Much speculation around what will and will not be included has taken place, and there are finally some answers to those key questions.
What to make of it from a contractor perspective? In our view, it’s not too bad.
Much of the talk leading up to the budget announcement was around whether the controversial IR35 reforms that have been so damaging to the public sector would be extended to the private sector. Many felt that this move would be made, and that the ramifications would be potentially catastrophic.
Fortunately, that move has, for now, not been made. A consultation process will however be carried out around non-compliance with off-payroll workers and taxation.
The official budget document reads: “Early indications are that public sector compliance is increasing as a result (of the reforms), and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.”
Though this presents the move being a distinct possibility, the statement does indicate that a full consultation process will be carried out.
"It is right that the government take account of the needs of businesses and individuals who would implement any change,” the statement reads. “Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
One would like to think that the poorly executed and damaging effects of the reforms in the public sector, as previously reported by Larsen Howie, will have a significant impact on this consultation and ward off any radical and ill-judged decision from the government.
Hammond also steered clear of forcing a rumoured decrease to the VAT threshold for another two years, following a push back from the contractor population who quite rightly were fearful of an administration increase as a result.
Additionally, another bonus to contractors and the population in general was that Insurance Premium Tax (IPT) is to remain frozen at 12%. A rise to 20% to bring it in line with VAT is still on the cards, deemed a stealth tax many given it is so much higher than anywhere else in Europe. How this one develops in the future we will have to see.
Larsen Howie Managing Director, Pete Willcocks, was surprised and encouraged by the Budget as a whole, saying "With the contractor workforce being used to taking hammer blow after hammer blow, and being seen as easy pickings for the coffers of the government, a period of continuity is a welcome relief. A number of investments announced in the budget will require a vast number of contractors and the expertise that the flexible workforce brings, however, convincing them to work in the Public Sector will be a challenge they have brought on themselves".
Willcocks went on to add "The consultation on IR35 in the private sector makes sense when compared to just rolling out the public sector changes to it, but it does make you wonder how confident they really are that those public sector changes have worked despite of the noises coming from places like HMRC and the IR35 forum minutes".
The IR35 consultation move has been welcomed by other industry representatives too. Chris Bryce, IPSE’s CEO, said: “IPSE were pleased to see that the Chancellor has understood our message that businesses of all sizes – including the vital self-employed community – need support. Tax is already a nightmare for many self-employed people, and lowering the VAT threshold would have added reams of red tape to the mess. By wisely choosing not to lower the threshold, the Chancellor has saved hundreds of thousands of self-employed people from very serious difficulties.”
IPSE was also particularly forthright about not making the IR35 reforms stretch into the public sector.
“Mr Hammond paid heed to IPSE’s warnings and pledged to consult on extending the changes to the public sector and ‘draw on the experience of the public-sector reforms, including through external research’,” said Bryce. “IPSE stands ready to join the consultation to ensure it takes into account the needs of the legitimately self-employed and accurately reflects the heavy damage the changes to IR35 have caused to the public sector.”
Whatever your take on things, the budget could have been far more damaging for contractors. The fact things will be remaining pretty much status quo for now should be viewed as a positive.
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Furthermore, with what will hopefully be an extensive consultation process, more industry representatives will be able to put their viewpoint across and deter the government from causing the damage to the private sector unfortunately seen in the public sector.