Chancellor opens spending firehouse, but contractors will be disappointed
IT contractors looking for a last minute reprieve over imminent IR35 tax changes were out of luck today, with Chancellor Rishi Sunak opening spending taps on Research & Development (R&D) and broadband infrastructure, but holding firm on proposals effective April 6 that are having a sweeping impact on freelancers.
Among the Treasury’s promises: £5 billion to support the rollout of gigabit-capable broadband in the most difficult to reach 20 percent of the country; and plans to aggressively increase R&D investment to £22 billion yearly by 2024-25.
The R&D funding will be used, in part, to “back businesses to invest and innovate so that they can compete in the global technology-driven economy.
New Institutes of Technology
Also in the Spring Budget, he promise of £120 million to “bring further education and higher education providers in England together with employers to open up to eight new Institutes of Technology… these institutions will be used to deliver high-quality higher level technical education and to help close skills gaps in their local areas.”
Further details of those institutes were not immediately released.
Support for businesses that experience increased costs or disruptions to their cashflow was also announced. This includes expanded Business Rates reliefs, a Coronavirus Business Interruption Loan Scheme to support up to a further £1 billion lending to SMEs, a £2.2 billion grant scheme for small businesses, and a dedicated helpline for those who need a deferral period on their tax liabilities.
(As ever, businesses will be looking closely to see how such promises materialise at the actual coalface and what eligibility restrictions will apply.)
IR35: No Deus Ex Machina
With regard to IR35, as James Poyser of inniAccounts noted: “There’s plenty of good news for business… But sadly, IR35 has not been delayed. And there’s a paradox: these large investments are project based, and need to be delivered by a flexible expert workforce and small consultancy firms who can roll on and off projects as needed.
A step unlikely to soften the blow for those affected: the Budget confirms a tax cut for 31 million working people with the increase in the National Insurance contributions thresholds for employees and the self-employed, saving what the Treasury anticipates for a typical self-employed person to be around £78 in 2020-21.
Nicole Forbes, Deputy General Counsel at Globalization Partners, added: “There has been a lot of nervous anticipation around the IR35 changes from companies and contractors alike. One aspect that is not immediately obvious is the impact it will have on internationally HQ’d companies who work with contractors in the UK.
“When an international company takes its first steps to expanding in the UK it will typically hire a small team in the region – primarily sales, technical and sometimes marketing folks. In the firm’s early days, this local team usually comprises contractors. It’s easy for the hiring company, requires no complex understanding of local contract law and is entirely flexible. All that changes under the new rules of IR35.
She added: “The responsibility will now be on the company’s shoulders to determine its relationship with contractors in accordance to IR35 and file ‘Status Determination Statements’ (SDSs). So, with the spotlight now on all businesses who work with contractors in the UK, it is imperative to act quickly and proactively to reduce the risk of non-compliance before rule changes take effect.”
Companies should consider three main things, she noted.
1) Hiring contractors through PSCs in the UK will no longer protect business from legal and financial responsibility. 2) Companies who haven’t already done so need to reduce the risk of non-compliance, asap. 3) Specifically: “You can easily and quickly alter the status of a UK contractor to full-time employee by hiring through an Employer of Record, protecting your business from the impact of IR35 rule changes.
“If you wish to retain your contractors who work via PSC in the UK, you must have an entity established in order to run payroll and offer a compliant benefits package. To set this up requires significant time, money, and expertise.”
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— HM Treasury (@hmtreasury) March 11, 2020
“Taken together with increases to the NLW (National Living Wage) and to the Personal Allowance, an employee working full-time on the NLW anywhere in the UK will be over £5,200 better off compared to April 2010″, the Treasury said.
Over the next five years, HMG noted, the public sector will overall invest £640 billion. That means that by 2024-25, public sector net investment will be triple the average investment over the last 40 years in real terms. It’s a huge increase and despite record low global interest rates, many will be watching closely to see just how prudent this is.
The Treasury noted: “Interest rates are expected to remain at very low levels for an extended period. This has prompted an international debate around the implications of this environment for fiscal sustainability and the role of fiscal policy.
“In this context, the Chancellor has announced that HM Treasury will conduct a review of the UK’s fiscal framework, to ensure that it remains appropriate for the current macroeconomic environment [and] keep the United Kingdom at the leading edge of international best practice in macroeconomic policy.”