Government repeals unfair 2017 and 2021 changes to both public and private sector IR35 legislation from April 2023

Chancellor Kwasi Kwarteng used the recent mini-Budget to repeal IR35 legislation in the public and private sectors, stunning and delighting contractors.

Mr Kwarteng said IR35 reform had imposed “unnecessary cost and complexity” for “many businesses,” so it will be repealed, “as promised by…the Prime Minister.”

In fact, Liz Truss only promised the Off-Payroll rules would be reviewed, but that’s not stopping the contractor sector from celebrating that all IR35 status decisions will be reverting to them from 6th April 2023.

The Chancellor was clear when he said “From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and they will be responsible for paying the appropriate tax and National Insurance contributions. This will free up time and money for businesses who engage contractors that could be put towards other priorities.”

Until now, a long line of Treasury ministers, backed by HMRC have, contrary to the evidence, said that the IR35 changes of 2017/2021 do not affect genuine contractors – conveniently ignoring the fact some organisations made a blanket determination and banned all limited company workers.

Along with a planned increase in Corporation Tax from 2023 being cancelled, this is great news for contractors and we expect to see clients who were forced to work PAYE or through an Umbrella Company, resulting in a large drop in net income, once again working through their limited company.

You don’t however have to wait until April 2023 to increase your take-home pay if you are currently working ‘inside IR35’ through PAYE or Umbrella. You can do so now by finding and moving to a new ‘outside IR35’ contract working through your own limited company.

As always, we are here to help and advise you.

With a new King at the Palace and a new Prime Minister at Number 10, it was no surprise that the new Chancellor at Number 11 used his first statement to the House of Commons to signal a “new era” for fiscal policy.

It turned out to be a striking change of direction, as the Chancellor opened his speech, saying: “We will be bold and unashamed in pursuing growth, even where that means taking difficult decisions”.

Gone was the Sunak era’s post-Covid emphasis on fiscal responsibility. Instead, in what the Government dubbed its ‘Plan for Growth’, Kwasi Kwarteng set out an approach prioritising tax cuts for individuals and businesses over immediate repairs to the public finances.

The Chancellor’s assumption is that cutting tax rates will boost economic growth and so increase the overall tax take.

This was Mr Kwarteng’s first real test as Chancellor, 18 days into the job, with inflation sitting at 9.9 per cent and energy prices spiking, interest rates rising, a weakened pound, plus the economic recovery from Covid by no means complete.

Only a day earlier, the Bank of England’s Monetary Policy Committee had raised interest rates sharply by half a percentage point to 2.25 per cent – the highest level in eight years – in a bid to stave off spiking inflation.

Despite being a Fiscal Statement rather than a Budget, the policies trailed in the days and weeks running up to the speech suggested that it might prove to be more significant an event than many full Budgets.

• Income Tax
• National Insurance/ Health and Social Care Levy
• IR35 Off-Payroll Working Rules
• Corporation Tax
• Stamp Duty Land Tax (SDLT)
• Annual Investment Allowance (AIA) and SEIS
• Investment Zones
• Energy Bills
• Conclusion

Income Tax

In a speech full of significant announcements, perhaps the most notable related to Income Tax.

The Chancellor announced that the Additional Rate of Income Tax, which is currently 45 per cent on income over £150,000 will be scrapped entirely.

He then moved to bring forward the cut in the Basic Rate of Income Tax to 19 per cent planned for April 2024 to April 2023.

National Insurance/ Health and Social Care Levy

Another landmark policy of the Johnson Government was the 1.25 per cent Health and Social Care Levy paid by employees and employers to help meet the cost of social care.

The current tax year is a transitional year in which the increase has been applied to National Insurance Contributions and it was to have become a standalone tax from April 2023.

Now, the Chancellor has announced that the charge will be scrapped and will no longer apply from 6 November 2022.

He said the reason for the move was to support smaller businesses, help households and boost economic growth.

IR35 Off-Payroll Working Rules

In an unexpected move, the Chancellor announced that the reforms to the IR35 off-payroll working rules in 2017 and 2021 for individual contractors operating via personal service companies in the public and private sectors respectively would be scrapped.

The change means that it will no longer be the responsibility of the organisation engaging contractors’ services to determine whether a contractor should pay tax on the same basis as an employee. Instead, that responsibility will revert to the contractor, as was the case previously.

Cancellation of planned Corporation Tax increase

The last Chancellor but one, Rishi Sunak, had announced a plan to increase the rate of Corporation Tax from 19 per cent to 25 per cent from April 2023 for companies with profits of more than £250,000. Those with profits of between £50,000 and £250,000 would have benefitted from tapered relief, while there would have been no increase for those with profits of £50,000 or less.

In a striking change from the previous Government’s policy, and consistent with the Prime Minister’s leadership campaign pledge, Mr Kwarteng announced that the planned increase will no longer go ahead and Corporation Tax rates will remain at 19 per cent.

He said that the rationale for the change is to encourage the investment needed to help the economy grow.

Stamp Duty Land Tax (SDLT)

In what might prove to become a tug of war between the Treasury and the Bank of England, just a day after many homeowners learned of a painful interest rate rise, the Chancellor offered substantial consolation in the form of a cut to Stamp Duty Land Tax (SDLT).

Indeed, just yesterday, the Governor of the Bank of England wrote to the Chancellor to warn him that tax cuts might mean even sharper interest rate rises.

Undeterred, the Chancellor pressed ahead with a move to double the SDLT threshold from £125,000 to £250,000 with immediate effect. For first-time buyers, the threshold will rise to £425,000 on properties of up to £625,000. The measure will apply permanently.

Annual Investment Allowance (AIA) and SEIS

In another surprise move, the Chancellor announced that the Annual Investment Allowance (AIA) would not fall back to £200,000 in 2023 but would instead remain at its current £1 million level permanently.

Meanwhile, he said there would be a two-thirds increase in the amount companies can raise through the Seed Enterprise Investment Scheme (SEIS) to £250,000 from April 2023. At the same time, the Annual Investor Limit will rise to £200,000.

Investment Zones

The Chancellor also announced the launch of up to 40 Investment Zones. In England, he said the Government is considering time-limited tax incentives for 10 years, including 100 per cent Business Rates relief, 100 per cent first-year allowances for qualifying expenditure of plant and machinery and an enhanced Structures and Buildings Allowance.

He said the Government is also considering zero-rate Employer National Insurance Contributions (NICs) on salaries of new employees in Investment Zones up to £50,270 a year, as well as full Stamp Duty Land Tax (SDLT) relief on land and building bought for commercial or new residential development.

The Chancellor said he will work with the Devolved Administrations to offer similar incentives in Investment Zones across the UK.

Energy Bills

Following on from the Prime Minister’s announcement on 8 September of the Energy Price Guarantee and the Secretary of State for Business, Energy, Innovation and Skills in relation to business energy costs, the Chancellor reiterated the support being offered.

He said that the Energy Price Guarantee, alongside the £400 credit already announced will cut bills by around £1,400 for a typical household in comparison to the levels they were expected to reach without Government action.

Meanwhile, he confirmed that businesses, charities and public sector organisations will benefit from equivalent relief if they had not locked into a fixed-rate tariff by April 2022. That measure will last for six months from 1 October 2022.

The Chancellor said that the Government’s intervention will reduce inflation by around five percentage points.

Conclusion

The speech was a dramatic statement of the fiscal philosophy being pursued by the new occupants of Number 10 and Number 11 Downing Street. They hope that by reining in energy bills and cutting taxes, consumers will be prompted to spend and businesses will be more likely to invest, ultimately benefitting the public finances through increased tax receipts.

Whether that’s likely to be the case will be a point of serious contention amongst economists and various factions of the Conservative Party, especially given rising inflation and the possible impact on interest rates. Many will see the measures as a serious gamble.

What is certain, however, is that businesses will be more interested in what actually comes to pass than any abstract debate about whether the Government is taking the best course of action.

Link: The Growth Plan 2022

Please note that due to impending holiday commitments, our offices will be closed on the following days over the next few weeks:

• Tuesday 27 September
• Wednesday 5 October
• Tuesday 11 October
• Tuesday 18 October

We will be open for business as usual on all other dates.

We thank you in advance for your understanding.

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If your questionnaire is received between 1 October and 31 December 2022, the fee will be discounted to £120; any returns received after 31 December 2022 will be charged at the full rate of £240.

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Liz Truss has been appointed as the new Leader of the Conservative Party and has, as a result, taken on the role of UK Prime Minister.

During her campaign for Party Leader, Truss made more than 149 pledges, including a promise to review IR35 and support sole traders and small businesses.

Now in power, many in the freelancing and contracting community are hoping that she, and her new Chancellor Kwasi Kwarteng, live up to the pledges that were made.

Alongside these specific pledges for the contracting community, Truss and her new Government are expected to make greater tax cuts, including abolishing a planned rise in Corporate Tax and reversing increases to National Insurance contributions introduced earlier this year.

So far, leaders of national associations, including the Federation of Small Businesses (FSB) and the Confederation of British Industry (CBI) have congratulated Truss on her victory but asked her to take immediate action to support businesses across the UK during the current economic crisis.

Martin McTague, National Chair of the FSB, said: “Small businesses are crying out for a comprehensive response which cuts taxes, limits spiralling bills, and provides direct cash support for the smallest businesses.” The FSB wants the new Government to take “bold” action.

The Director-General of the CBI, Tony Danker, has also requested that the Prime Minister deliver economic support for households, workers and businesses.

Finally, Andy Chamberlain of IPSE, speaking to Bdaily, said “IPSE looks forward to working with the new Prime Minister and her cabinet”, in particular their review of IR35, employment status and the Managed Service Company legislation.

He added: “These rules are destroying businesses and holding back the economy – and they need to change now.”

Urgent action

So far events have complicated the enactment of any new legislation, not least the sad passing of Her Majesty Queen Elizabeth II.

However, new energy support measures have been announced. A new Energy Price Guarantee will ensure that “a typical household in Great Britain pays an average £2,500 a year on their energy bill, for the next two years, from 1 October 2022”.

The Government has said this new measure will cap ‘per unit costs’ meaning that savings will remain linked to each consumer’s usage. However, a typical household will save at least £1,000 a year based on current prices from October.

A new six-month scheme for businesses and other non-domestic energy users will also be introduced. After this period ends, the Government will provide ongoing focused support for vulnerable industries.

Further details of this support and the Government’s other tax cuts and promises are expected in an imminent financial statement on Friday 23 September 2022.

The UK is experiencing a critical skills shortage as unemployment falls to the lowest level since 1974.

New data from Office for National Statistics (ONS) shows that the rate of unemployment in the UK fell to just 3.6 per cent in the three months to July 2022.

As a result, many employers are struggling to find candidates for critical roles in their businesses, particularly in highly skilled or specialist areas.

So, what is the solution?

According to a new study, more than three-quarters of employers are turning to contractors to fill the gaps in their workforce, as part of a new approach to doing business.

Why does this matter to you as a contractor?

Knowing why employers want to utilise the services of contractors and freelancers empowers you to make a better case during the hiring process, so you can secure a contract – and in some cases, increase your rate.

Here are the top five reasons why employers favour the services of contractors:

Less risk – Hiring the wrong person can be a costly mistake in several ways. The longer the person remains ‘in post’, the more these issues are compounded and inevitably when they leave or are removed from their position, businesses need to reinvest time and other resources into hiring someone new.

A bad permanent hire can drive down productivity, hurt morale, and even drive away work and other key employees.

In comparison, the relationship between contractors and engagers is more flexible. If a business hires the wrong contractor, it may be easier and cheaper to terminate a contract and find someone more suited to the role.

Increasingly, even where contractors are performing well, businesses like the flexibility that freelancers offer, as they can scale back on their workforce quickly if their economic position worsens.

Speed – Contractors can be taken on faster than permanent hires and it typically costs less to onboard them. It is amazing how much resources and time go into a permanent hire. Add on to this the need to embed them within the work culture and train them, and it is clear to see the headaches that employers face.

Whilst there is a degree of onboarding required for contingent workers, more often than not experienced contractors can come in from day one and fulfil a role thanks to their existing skills and experience.

Broadening talent – Finding and recruiting the best talent can be a challenge and, in this talent-scarce market, many of the most skilled individuals are increasingly recognising the professional, financial and lifestyle benefits of contracting.

To broaden their pool of talent, many employers have no other options than to seek out the support and services of freelancers.

Thankfully, the move to remote working means that the geographic barriers that may once have stood in the way of finding the ideal candidate no longer exist within many roles – bringing new flexibility and accessibility to the job marketplace.

A change of approach – Given the challenges and benefits outlined above, many businesses are already changing their organisational design to incorporate contractors so that they are more agile.

By adopting a greater contingent workforce, businesses are finding that they can adapt better to change, and HR can flex their teams for a business’s dynamic needs.

In fact, according to the report, more than one in three businesses using contingent workers say they do so to improve their agility (36 per cent).

Filling a gap – Sometimes the reason for hiring a contractor, even for a short period, is more practical. As the great talent search continues, employers are using contractors and freelancers to fill temporary gaps in their workforce until they can make permanent hires.

Similarly, with more people taking career breaks and time off for maternity, paternity or adoption leave, a short-term contractor is a great solution to quickly fill a role, without the complexity and cost of a permanent or semi-permanent hire.

Even if a business has a short-term requirement, such as specialist skills to complete a one-off project, then hiring a contractor may make more sense than creating a full-time, permanent role.

That is why 75 per cent of corporate finance leaders questioned said they see contractors as an important part of their company’s recruitment strategy.

Armed with this useful information, you should now have an even stronger position to go out there and win new, more lucrative work – don’t sell yourself short.

How well do you market yourself on LinkedIn? Can potential clients identify your skills, strengths and experience?

In our last few newswires, we have looked at how contractors can use social media platforms, like LinkedIn, to find new work for themselves.

Now we take a look at the improvements you can make to your profile and activities you can undertake to get noticed and secure new work.

Introduce yourself

One of the most important parts of your profile is your summary and ‘about’ section. These are the first things that appear below your name when it appears in searches.

The summary should do exactly what it suggests, sum up your areas of expertise. When searching through a list of candidates, this is the first thing potential recruiters see and it can sway a decision – first impressions count.

Below the summary is the ‘about’ section, where you can talk at more length about your skillsets, interests, passions and experience.

Try to keep this concise and engaging, focusing on your core skills and expertise. Don’t be afraid to get a little creative, as it will help you stand out from the crowd.

Update your skills and experience

It is amazing how many LinkedIn profiles are out of date or simply do not contain any real information about a person’s skills, experience, education or expertise.

Although adding new skills or job experience may seem inconsequential, for those seeking out contractors and consultants, it can give them a clearer picture of who you are.

LinkedIn has a highly advanced search algorithm, which allows recruiters and the engagers of contractors to look for the most minute details.

This covers everything from skills to accreditations, membership of networks and even a person’s interests.

That is why it is important to check your current skills listing and add to it if there are gaps. It might be that you have gained new skills or perhaps there were some skills that you missed during the creation of your profile.

Seek recommendations and endorsements

LinkedIn allows you to accept endorsements of your skills and recommendations from your connections.

If you are coming to the end of a contract, why not reach out to your main points of contact within the business and ask them to give you an endorsement or recommendation on LinkedIn.

These can boost your position within the search algorithms and are also a great way to promote your expertise to those landing on your profile page.

Join networks and groups

You can join a wide number of groups and networks on LinkedIn. These are small forums where people can share posts and information. They can be a useful resource for finding work.

However, being part of a network or group also allows recruiters and engagers to find you more easily, as they can search by network or group to find people with similar skillsets or interests.

This can be a great way to get yourself on to a shortlist of candidates, where businesses are using LinkedIn to find potential contractors.

Be active

The personal accounts that achieve more on LinkedIn are the most active ones. If you are creating content and sharing and liking other people’s content, you are going to build connections quickly and be seen by more people.

Try and set yourself a target of liking or sharing five posts a week and try to create at least one new post a month. You may be wondering what you can post about…

With LinkedIn, there is a wide range of things to consider posting about from topical news in your industry to personal achievements or even interesting anecdotes from your career.

By creating engaging content and being more active, businesses will find you more easily and you can quickly expand your connections.

We hope you have found our recent series on LinkedIn helpful. It is a great tool for securing new work and with a few simple steps, as outlined in this and our previous articles, you can achieve much more with the platform.

It is that time of year again when many of us look to jet off to sunnier climates or head to the seaside to enjoy some much-needed rest.

Of course, unlike workers who are regularly employed and paid via PAYE, the decision to take a holiday can create challenges for contractors, as it may mean a period without pay that needs to be factored into your plans.

To help, here are some hints and tips to help alleviate the stress and strain of having time off:

Communicate clearly with clients

If you plan to take time off during a contract, this should be clearly communicated with your client and arranged well in advance, where possible.

This is even more essential if you plan to start a new contract and already have a holiday booked. Many freelancers are advised not to book off holiday within the first month of a new contract or have time off until the new contract is in place.

Having open and honest conversations with the business you are supporting can help them to plan around your absence and ensure they either have your role covered or plan their wider workflow around you.

However, be aware that a formal request for holiday, rather than a general statement on when you intend to be off, could in some circumstances misconstrue your relationship with your engager and create the impression of employment. This could have implications for IR35.

To further prevent any confusion regarding your IR35 status, you can elect to send a substitute in your place to provide similar services while you are absent, thereby clarifying that you are providing a service and not employment.

Try to be flexible

As you are working through your own limited company, you can take odd days off during the contract – it is one of the benefits of being a contractor. However, this must not adversely affect your work or the delivery of that contract.

Speak with the business you are working with, understand their pressure points and try to work around their plans.

Be mindful that it is very unlikely you will be allowed to have more than two weeks off at a time. If you anticipate needing extended time off, try to time this so it happens between contracts, but consider that it could take a few weeks once you return to secure a new contract.

Build up a surplus

If you plan to have time off during a contract, you will need to consider how you support yourself financially during that time as well.

It might be that you can incorporate this through a higher overall fee for the contract, but it might also be that you build a surplus within your limited company to ensure you receive payments even when you are not working.

Relax

Perhaps one of the most important things that you can do is relax. It is really important to have time off from work to recharge your batteries and spend time with friends and loved ones.

Your productivity and passion for work can really suffer if you don’t take the time to wind down once in a while.

Remember, you are not limited to a specific number of days in a year for holiday as you are not paid for time off.

You can take as many days off as you desire with the client’s agreement.

From everyone at Cogent, we hope you have a wonderful, restful summer break.

According to a new study, 39 per cent of Brits have considered taking up freelancing, suggesting a renaissance in this form of work following a significant fall in freelance workers since 2019.

Despite the impact of IR35 and the uncertainty created by the pandemic and subsequent economic downturn, the freelance labour market is worth an estimated £303 billion to the UK economy.

It is not surprising given this success that a third of employees feel that they could make more money as a contractor, consultant or freelancer.

While improved pay was a motivator for many surveyed, many other key factors highlighted the attractiveness of freelancing, including:

• Flexibility – 49 per cent
• Improved work-life balance – 48 per cent
• Being their own boss – 48 per cent

While many commentators worried that numbers of self-employed workers might continue to fall post-pandemic, today’s research clearly shows that freelancing is back!

Brits are still keen to pursue freelancing, with a significant number thinking about swapping their full-time job for the dynamism, freedom and creativity of self-employment.

Despite the many positives of freelancing, study showed there were also many challenges with the sector, particularly the fundamental problems created by IR35 reforms.

Alongside this, 22 per cent of respondents identified the complexity of the tax system as a reason that they would not consider freelancing, while a quarter cited the loss of sick pay and holiday pay as deterrents.

Boris the meerkat saved by brave skipper

With the hot weather we have recently enjoyed, many of us may have been tempted to take a dip in the sea, but it was almost the end for one meerkat in Cornwall after he plunged 30ft off the side of a boat.

Boris had only recently arrived in Penzance aboard the Gry Maritha when he made a bid for freedom when he broke out of his cage with his travelling companion Doris.

The pair had been making a trip from the Isles of Scilly to Axe Valley Zoo in Axminster, Devon when the escape attempt took place.

Thankfully the ship’s skipper Tom Sexton acted quickly, stripping down to his boxers and plunging into the sea to rescue the furry getaway.

Speaking with the Metro, Tom said: “I think the owner originally had four of them in a sort of little petting zoo at his council house.

‘Two of them were in this cat carrier style box but managed to figure out how to break out while we were sailing.

‘The two of them were just running around the deck, but there were all kinds of cars and crates they kept hiding under, so we decided to leave it until we got into port.

“Eventually after mooring, we all got out brooms and gloves and the five of us started running around the deck trying to catch them.

“We managed to get the first one, but the second one jumped overboard. I was actually pretty impressed at how good a swimmer he was, but he seemed to be in a bit of trouble.

“I decided I’d jump in and grab him so I stripped off down to my boxers and put on some gloves to go get him, I knew they could be quite nippy.

“I was surprised how easy it was to get him though. We then put him back in his box and hoisted him back onto the deck.”