Spring Budget 2020 and IR35
With the IR35 reforms right around the corner now, we imagine you were watching the Rishi Sunak’s first Budget as Chancellor with as keen an interest as we were. However, any business or recruiters hoping for the announcement of a delay to the off-payroll working reforms would have been sorely disappointed: IR35 didn’t even warrant a mention in Mr Sunak’s speech, and was given just a short paragraph in the documentation.
This is, however, hardly surprising. The results of the Government’s review of the reforms were published recently, bringing in a small number of policy changes to the draft legislation, including:
- Confirmation of a legal obligation to be placed on all end clients to confirm their size, creating clarity on whether or not off-payroll rules apply for the contractor or agency.
- The new rules will not apply if the client is wholly overseas, with no subsidiary or presence in the UK.
- Confirmation that the new rules will now only apply to payments made for services which were provided on or after 6th April 2020. Payments for services provided before this date will not be affected.
The main takeaway, though, was that the reforms would be going ahead on 6th April regardless, with no delays. Today’s Budget merely confirmed this fact: “The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.”
This should be the final warning to end clients and recruiters who are not yet prepared for the reforms: they are definitely happening and happening soon so it really is time to get your house in order.
Pandemic support for the self-employed
Of course, even if the review hadn’t signaled that IR35 would be carrying on regardless, the Coronavirus pandemic sweeping the globe would probably have seen it brushed aside. The Chancellor used his speech to reiterate that COVID-19 is will likely cause disruption to the economy, with people spending less as up to 20% of the workforce is off at the same time.
He had confidence that this disruption would only be temporary and that the UK would be able to recover, however, he did outline measures to support businesses and individuals affected by the illness or the need to self-isolate. Of particular interest were the measures specifically for the self-employed:
- Support for those who are ineligible for Statutory Sick Pay (SSP). This would take the form of a “‘new style’ Employment and Support Allowance [which] will be payable for people directly affected by COVID-19 or self-isolating according to government advice for from the first day of sickness, rather than the eighth day.”
- Self-employed people and businesses that are affected will also receive support with tax affairs. HMRC will waive late payment penalties and interest where businesses experience difficulties contacting HMRC or paying taxes due to COVID-19. There is also a dedicated COVID-19 helpline to assist those in need.
- “The government will [also] launch a new, temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, to support businesses to access bank lending and overdrafts.”
With measures like these, recruiters, in particular, will be able to reassure their contractors that there is support for them should they become affected.
Tax avoidance and NICs
While not linking it directly to the IR35 reforms, the Budget had many mentions of tackling tax avoidance schemes and promoters by giving additional funding to HMRC. This should raise an additional £4.7 billion for the public purse between now and 2024/25. Although this affects contractors rather than fee payers, it is certainly something recruiters should be ensuring the contractors they work with are educated on so that they don’t unwittingly fall foul of any new measures.
Similarly, Entrepreneurs’ Relief is being scaled back to set the limit to £1 million to prevent affluent taxpayers taking advantage of it. However, 80% of those currently using the relief will be unaffected. Again, this is something to ensure contractors are aware of – in part to ensure they are aware of the relief and, if eligible, are taking advantage of it.
In some good news for the self-employed, however, the Lower Profits Threshold for National Insurance Contributions is set to rise to £9,500 from April, saving the average contractor around £78 in the 2020/21 tax year.
Mr Sunak also announced several ways in which the government is looking to support contractors in the near future. These included:
- Extending funding for the Start-Up Loans program to the end of 2021/22, supporting up to 10,000 further entrepreneurs across the UK to start a business through access to finance.
- The launch of HMRC’s new interactive guidance this summer, which is designed to make navigating the self-employed tax system easier.
- “Additionally, the government will consider how to provide appropriate support to self-employed parents so that they can continue to run their businesses, as part of its wider review of Parental Pay and Leave.”
While these measures do not directly affect recruiters, end clients, and others in the contractor supply chain, they perhaps demonstrate more recognition for contractors, who have been traditionally ignored in Budgets in favor of employees. They also give some food for thought as to the shape contracting may take in the future.
Overall, it may not have been the budget that many recruiters and clients had been wanting – although it was always highly unlikely that IR35 would be halted at this point in the process. Add to this Coronavirus somewhat hijacking the agenda and the Budget was a bit different from what was anticipated earlier in the year. Despite this, there were still several announcements geared towards contractors and that will be watched with interest by all parts of the supply chain.