Autumn Statement 2023 – Hope for Contractors

Autumn Statement 2023 – Hope for Contractors

 The Chancellor of the Exchequer, Jeremy Hunt MP, announced the Autumn Statement 2023 with a plethora of measures intended to stimulate the economy in advance of the general election.

 Of significance, the Chancellor confirmed (see paragraph 5.50 below) that the Government will introduce legislation, presumably to come into force in April 2024, to offset any tax already paid by a contractor against any liability owed by a client in cases where the Off-Payroll Working rules have been mistakenly applied. The IR35 legislation already includes an offsetting mechanism, but the Government rushed the introduction of the Off-Payroll Working rules (Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003), leaving clients in the invidious position of potentially being liable for all tax arising from payments to a contractor using a company where a mistake has been made irrespective of tax paid by a contractor.

 “5.50 Off-Payroll Working (IR35) – calculation of PAYE liability in cases of non-compliance – The government will legislate in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules.”

 Two lessons have emerged:

 1. Clients can engage contractors with confidence as the risk of liability under the Off-Payroll Working rules will be substantially reduced. 

2. To avoid making mistakes, don’t use CEST – getting expert legal advice is the only solution. CEST cannot explain why the terms of the contract and other circumstances support either an inside or outside conclusion so does not produce a valid status determination statement. Its use will attract penalties of 30% if the Off-Payroll Working rules are found to apply. Neither snake oil from automation advocates nor obstinately refusing to engage contractors on an outside IR35 basis can help. Umbrella companies will be legislated out of existence by April 2024, so their metastatic spread will be reversed and contractors will once again be the best option for clients seeking to avoid employment rights and agency worker claims.

 The Chancellor did not announce any changes to the small companies exemption, so the existing IR35 rules will continue to apply to contractors providing services to small companies. Contractors providing services to small companies must continue to take reasonable care with their tax liability. This means seeking professional legal advice, i.e., a person with a law degree, relevant training and experience. The duty to exercise reasonable care cannot be discharged by seeking legal advice from someone lacking legal qualifications.

 The death knell for umbrella companies?

 While the Autumn Statement 2023 did not directly refer to umbrella companies, paragraph 5.59 highlights the Government’s aim of eradicating the promotion of tax avoidance using new powers to disqualify directors promoting tax avoidance, such as loan charges. All too often, directors of umbrella companies abuse the Insolvency Act 1986 by phoenixing, i.e., dissolving a company when threatened with investigation only to start a new umbrella company with a similar name. Phoenixing not only prevents recovery of tax by HM Revenue & Customs, but also enforcement of county court debts such as unpaid wages. Attacking directors will prevent this practice.

 It is anticipated that the Government will legislate in due course to prevent payments by umbrella companies to recruiters for the purpose of being added to a preferred supplier list under the dubious guise of accreditation. The recent consultation exercise highlighted the need for urgent reform, such as strict regulation of recruiters and umbrella companies, and for amendments to the Criminal Finances Act 2017 to create a new offence of failure by a director of a client company to exercise due diligence when procuring the services of individuals paid via a third party whether or not part of the supply chain.

 The Government also announced plans to extend the reporting requirements (paragraph 5.60). However, particulars of the “new or improved data” were not forthcoming. Based on previous experience, it is likely that the data will be used to target IR35 enquiries.

 In a further boost for contractors, the Government confirmed (in paragraph 5.62) that full expensing of plant and machinery, including computers, will become permanent.

 If you need advice on the IR35 and Off-Payroll Working rules, please get in touch with The Law Place Limited to arrange a free consultation with Martyn Valentine LLB (Hons).

 We operate a disruptive pricing model, and fees start from £150 per hour. We never apologise for our director having relevant qualifications, nor undercutting the competition.

We advise on all aspects of employment status law, from legal status determination statements, IR35 contract reviews,  Off–Payroll Working rules, contractual audits, representation in IR35 enquiries and contract drafting. We won’t charge extra for our 20 years of experience in providing robust legal and commercial advice.


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