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Autumn Statement 2016: Major IR35 reforms to go ahead – contractors hit by cash grab

Reforms to IR35 in the public sector are set to go ahead with no delay, the Government confirmed in the Autumn Statement today.

The changes, which will see contractor engagers assume responsibility for confirming contractor status and the associated tax liability, will be implemented from April 2017. Experts predict that a private sector rollout is likely to follow a year later.

Other key highlights for contractors from this year’s Autumn Statement include:

  • Corporation tax will fall to 17%, as planned
  • Personal allowance to increase to £11,500 in April, and £12,500 by the end of this Parliament
  • No changes announced on the taxation of dividends
  • Construction contractors to benefit from £2.3bn Housing Infrastructure Fund for 100,000 new homes
  • Engineering contractors boosted by £23bn national productivity investment fund, focusing on infrastructure
  • Employer and employee NICs to be aligned at £157 per week
  • Tax savings on salary sacrifice arrangements are to be withdrawn

Chancellor delivers major blow to public sector contractors

Any faint hopes that the Government would withdraw plans to reform IR35 in the public sector following stern opposition were quashed with the publication of the Autumn Statement, which read:

‘The Government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar was to employees in the public sector will pay the same taxes as employees.’

Though this wasn’t confirmed in the Chancellor’s speech itself, contractors will have feared the worst when Hammond commented: “Rapidly rising incorporation and self-employment is hitting tax receipts.”

The Autumn Statement also highlights that the 5% tax-free allowance will also be withdrawn from those working in the public sector, claiming it reflects the fact that workers no longer bear the administrative burden of determining whether the rules apply.

HMRC have also told ContractorCalculator today: "We will be publishing legislation and customer guidance together with a summary of responses to the consultation. We expect this to be available from 5th December 2016. We will be issuing updates to help you prepare for the changes in April, these will include developments on the new digital tool to help people determine employment status. ".

Contract sector wants answers from Government

“As disappointing as it is, the announcement doesn’t come as a great shock,” comments ContractorCalculator CEO Dave Chaplin. “It is now up to public sector contractors and engagers to ensure they’re fully prepared for the changes to mitigate their impact.”

“The Government must now justify this decision. It has chosen to ignore the advice of the business and freelance community.We want to know why. It would be totally justified for contactors to walk away from the public sector,” adds Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed (IPSE).

“There was no recognition for the immense contribution the self-employed make to the economy. Having trumpeted the lowest unemployment rate for 11 years, ironically the Chancellor has launched an attack on the group largely responsible for this record.”

Government showing no signs of slowing tax avoidance clampdown

Chancellor Philip Hammond’s speech was decidedly shorter than his predecessor, George Osborne, with less focus on departmental micromanagement of spending. As a result, there appear to be fewer notable immediate changes for the contract sector.

Contractors will be pleased to hear that no changes to taxation on dividends have been announced. The Government has also confirmed it will meet its commitment to raise the income tax personal allowance and the higher rate threshold to £11,500 and £45,000 next April respectively, and by £12,500 and £50,000 by the end of this Parliament.

Despite the Government reshuffle, tax avoidance is still high on the list of priorities. Contractors who use a tax avoidance scheme that HMRC closes down will be subject to a new penalty, confirmed Hammond, who estimated that the new tax avoidance measures the Government plans to introduce will save £2bn over the forecast period.

Sign up to ContractorCalculator for latest industry and IR35 updates

Though changes for the contract sector might not appear as significant as first feared, the devil is in the detail. ContractorCalculator will be working hard to uncover any further changes that will impact on the industry, and specifically on IR35. Sign up to ContractorCalculator and join thousands of contractors by receiving up-to-date news from the sector in your inbox.

Published: 23 November 2016

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