What does 2022 hold for contractors?

What does 2022 hold for contractors?

Contractors have faced a tough couple of years dealing with rising costs, the COVID-19 pandemic, Brexit and, of course, the challenges of IR35.

These issues have constrained the contracting community, forcing some freelancers to completely alter the way in which they work.

So, what does the future hold? Our team has looked at some of the key developments on the horizon.

IR35 is not going away

Although many contractors have had to get used to the issues created by IR35, the reality is that it is still the biggest and most persistent difficulty that most contractors face.

The reforms have caused major disruption during a really tough time. Many contractors working via a PSC have had to alter their working arrangements to adapt.

However, things may be looking up. Although the Government hasn’t altered the IR35 rules, there is unmistakable evidence that larger businesses required to abide by these new rules have stopped using blanket bans in the main and have got to grips with making proper status assessments.

In fact, thousands of firms are still collaborating with contractors, engaging them outside IR35 and many more now better understand their requirements under the off-payroll legislation.

IR35 to be scrutinised

The well-publicised cases of incorrect status determinations and the various legal decisions against employers and HMRC over IR35 status has drawn the attention of Parliament.

There are several groups and committees requesting evidence and further scrutiny of the rules is expected.

This year we should see the follow-up Lords review into IR35 reform and a further National Audit Office investigation, which should reveal the true impact of the reforms.

It is hoped that the Government will make positive changes to the rules based on the recommendations that are delivered but much will depend on whether they listen.

Alongside this HMRC continues to update and overhaul its fundamentally flawed IR35 tool, CEST.

Tax avoidance is public enemy number one

Given the significant spending during the pandemic, HMRC is keen to stamp out tax avoidance, especially among smaller businesses and taxpayers.

During 2022, the Government has promised to tackle tax avoidance schemes and is implementing new powers under the latest Finance Bill to do so.

When it comes to contractors, there are growing calls for some umbrella companies to be investigated and new rules to be enforced preventing these businesses operation as unscrupulous tax avoidance schemes. We operate a fully compliant umbrella company under our Cogent brand should you be required to work through one: https://cogentaccountants.co.uk/cogent-umbrella

Many contractors may have already been stung by the Loan Charge legislation and should avoid repeating this situation again by using the wrong umbrella company, despite the assurances given by promoters of some schemes.

False self-employment

It is thought that the Government wants to take a wide look at the self-employed workforce beyond the IR35 reforms, which predominantly affected contractors working via PSCs.

It is understood that it may be looking into whether sole traders are genuinely self-employed or if the businesses engaging them are facilitating ‘false self-employment’.

Here to help

Whatever challenges may come your way in the year ahead, our team at Cogent are here to offer a helping hand, so please get in touch.

IR35 evidence given to House of Lords likened to ‘fiction’

The ongoing probe into IR35 by the House of Lords has uncovered some interesting information and responses from contractors and those who use their services, as well as from HMRC.

A former tax official  was recently quoted as saying: “Absolutely everyone else has a different experience to HMRC. But based on their past report, I have every confidence that the committee will soon sort the reality from this fiction.”

She isn’t alone in condemning HMRC’s findings and comparing it to the very different experience faced by contractors. In fact, Qdos CEO Seb Maley said that “HMRC’s submission doesn’t tell the full story of IR35 reform” pointing out that “the Government paints a picture that suits it’s own narrative”.

These comments are not surprising given that HMRC said that most contractors and engagers had found operating the new IR35 rules “easy”.

This was at complete odds from the written evidence submitted by industry organisations, such as IPSE, FCSA and the LITRG.

However, HMRC went further saying that most businesses had found the rules “reasonable to apply.”

Many experts have, however, pointed out that the £135 million of fines issued against other Government agencies and departments for failing to comply with IR35 suggested otherwise.

Elsewhere in it’s submission, the tax authority said when it was made aware of contractors “changing the way they work” due to IR35, it became “pro-active” to “raise awareness…among contractors.”

However, the industry has pointed out several examples of HMRC publishing factsheets and guidance late, not adding it to the GOV.UK website or not sending it out to those who must abide by the new rules.

HMRC seems to be painting a vastly different picture to peers than the realities faced by many contractors and, unsurprisingly, it has some experts concerned.

In fact, the 14 page submission shows HMRC not fully answering the Lords’ questions on five separate occasions, each time claiming it is “too early” to say what the impact is.

One area that the peers were particularly interested in was the cost of administering the scheme. It is clear that many PSCs and medium or large commercial organisations have found administering the rules more onerous and costly.

However, it seems HMRC itself has struggled with the administrative burden and revised the initial cost of managing the scheme from £14.4 million to £19.7 million.

It is clear then that the impact of IR35 has been far greater than HMRC had predicted and more wide reaching.

Hopefully, the House of Lords report should be issued later this year, and given the evidence presented to it by contractors and organisations, should make further recommendations to improve the complex and costly IR35 rules.

IR35 reforms force 90 per cent of firms to increase contractor rates

A new report has found that almost nine in 10 UK businesses have been forced to increase their rates for contractors to attract the right talent.

Much of the UK is experiencing a labour shortage at the moment, driven by a number of distinct factors, and the world of freelancing and contractors seems to be no different.

However, the main impact forcing the rates of contractors higher appears to be IR35 reform in the private sector.

According to the new study, of those firms that had increased their rates for contractors, 75 per cent were required to raise the amount paid by more than 10 per cent.

The research also showed that 77 per cent of end clients now find engaging contractors difficult, with half describing the process as “challenging”.

Despite rising rates, 90 per cent of the companies questioned intend to extend their use of contractors during the next year and a half to fill gaps in their workforce or to support further growth.

Surprisingly only 31 per cent of businesses had increased rates due to fears of non-compliance. Instead, contractor costs (53 per cent), talent attraction (42 per cent) and project delays (42 per cent) were seen as the bigger risks of using a “bad IR35 solution”.

The report stated: “For businesses that rely on the contractor workforce to deliver projects on time and to budget, access to a talented flexible workforce is vital to growth.

“With job vacancies reaching an all-time high, presenting an attractive, compliant and competitive IR35 offer to talent is the best way to regain some control in an uncertain environment.”

And finally – Strangest requests from guests in 2021 revealed by Travelodge

Hotel company Travelodge has revealed the strangest requests it has received from its guest in the last 12 months – and some of them are really out there.

According to the popular accommodation provider, one resident staying Derbyshire asked what time they can see the snake on the Snake Pass – a popular local tourist destination.

In another example, one guest in York kindly asked a member of staff to sing in the next room to check he had a quiet room.

Making special requests at a hotel is common Travelodge said, but the last 12 months had been particularly odd.

With growing demand for staycations, the company had experienced a surge in bookings across it’s 582 hotels across the UK following the lifting of all COVID-19restrictions.

Some other examples of odd requests included one guest in St Austell asking for a room with a south-facing window because he required sunlight to charge his aura first thing in the morning, while staff at Newcastle Quayside Travelodge were left shocked after a customer asked for a children’s paddling pool so their pet fish could have a spacious bed for the night.

A spokesperson for Travelodge said: “With more Britons holidaying on British shores than ever before, our hotel teams have also received a high volume of interesting requests and questions, especially around place names, local dishes, customs and traditions across the British regions.

“Where possible, our hotel teams will go above and beyond to help customers as they relish a good challenge.

“However, there are some requests beyond their control, such as arranging afternoon tea with the pandas, getting a shooting star to appear at 10pm, getting a part on Emmerdale, and getting seagulls to sing instead of squawk.”

Send us your Self-Assessment Tax Return Questionnaire by 31 December to save 50 per cent on your basic tax return fee

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

If you would like Cogent to prepare and file your 2020/21 tax return and you have not yet sent us your completed personal tax return questionnaire, you will need to do so by 31 December 2021 to benefit from our discounted fee.

The standard charge including VAT for a basic tax return is £240. Questionnaires received by 31 December 2021 will receive a 50 per cent discount on the basic tax return, charged at £120. Any returns received after 31 December 2021 will be charged at the full rate of £240.

Please note, more complicated tax returns, where additional work or supplements are required, will be subject to additional charges.

  • It is important to remember that even if your limited company has or is to be closed, it does not mean you are no longer required to file a Self-Assessment tax return. Only HMRC can release you from this responsibility and they will only do so providing you have no other sources of untaxed income.
  • If you have a second shareholder, they may also need to file a tax return, even if they haven’t previously; this is due to the changes to dividend tax from April 2016 which affect many dividends over £2,000 (£5,000 in 17/18).

Our Cogent deadlines have been set so that we can complete your return in time to meet the HM Revenue & Customs’ online filing deadline of 31 January 2022. Penalties for late filing of tax returns can be as much as £1,600, even when there is no tax due, so please ensure your tax return is filed on time, whether you ask Cogent to prepare it for you, or you have made other arrangements.

You can request a questionnaire by emailing tax@cogentaccountants.co.uk

Please complete the questionnaire and return it together with any attachments to tax@cogentaccountants.co.uk.

You are required to file a tax return if:

  • You have been asked to file one by HMRC
  • You have a tax liability for the year (e.g. tax on dividends or higher rate tax, or if you have any income which has not been taxed at source)
  • You have a new source of income that needs to be declared

***PLEASE IGNORE THIS REMINDER IF YOU HAVE ALREADY SENT US YOUR QUESTIONNAIRE***

Lords call on Government to conduct ‘wholesale reform of IR35’

The House of Lords Finance Bill sub-committee has urged the Government to reform the off-payroll rules, also known as IR35, as it launches a fresh inquiry into the rule changes in the private sector.

Following the launch of the new investigation, Lord Bridges of Headley, who chairs the sub-committee, has called on the Government to undertake a “wholesale reform of IR35” due to it’s impact on contractors and companies.

He said:“Our previous inquiry found the Government’s off-payroll working rules to be riddled with problems, unfairness, and unintended consequences. We called for the wholesale reform of IR35.

“We’re carrying out this follow-up inquiry to find out about the experiences of engagers and contractors to date. We want to hear particularly from representative bodies about the experiences of individual contractors.”

The new inquiry is a sequel to the sub-committee’s previous report, Off-payroll working: treating people fairly, which revealed “inherent flaws” with the off-payroll rules.

To get a better appreciation for the impact of IR35, the Lords committee has called for evidence from professional bodies, businesses and contractors.

Responding to the new inquiry, Andy Chamberlain, Director of Policy at IPSE, said: “The impacts of the IR35 changes in the private sector, implemented earlier this year, are already being felt.

“We have seen drastic shortages among HGV drivers and we know from IPSE’s research that many contractors in other sectors have closed their businesses as a result. We are, therefore, delighted the draft Finance Bill sub-committee will look at this issue in a follow up inquiry.

“The committee’s report prior to implementation was damning of the reforms, yet was largely ignored by government. We hope policy makers will pay more attention this time around and IPSE will certainly respond to the call for evidence.”

Is the 100,000 HGV driver crisis the result of IR35?

Businesses across the UK are grappling with a shortage of drivers, which have made it increasingly difficult to ship goods to and from ports, stores and warehouses.

Although Covid and post-Brexit regulations are thought to be mainly to blame for this crisis, experts have said that IR35 has had a role to play as well.

The Road Haulage Association (RHA) estimates that the UK is short of more than 100,000 qualified HGV drivers.

Although the new immigration rules have made working in the UK less attractive and challenging, the chaos of the IR35 reforms in the private sector has added to the HGV crisis.

As with other sectors, the introduction of IR35 reform in April 2021 shifted the responsibility for determining a contractor’s tax status to the end client in the logistics industry.

As a result, many companies in the sector, including many agencies, placed all contractors inside IR35, leading many drivers to leave the industry.

In many cases, agency drivers or self-employed operators were handed an ultimatum, according to experts; either work on the payroll or have your contract cancelled.

In response, many drivers chose to vote with their feet and either moved to contracts outside IR35 or left the profession altogether, either through retirement or by retraining in another role.

This risk averse approach, which has been experienced in many different industries, seems to have led many businesses to lose contractors at an important stage of their recovery.

Experts have said that a change in strategy regarding IR35 may help to alleviate some of the pressures felt by drivers and encourage them to return to work in the logistics sector.

Andy Chamberlain, director of policy at self-employed trade body IPSE, said: “The changes to IR35 are the forgotten factor driving the HGV crisis.

“IR35 is evidently not the only factor involved, but as research from the Road Haulage Association has shown, it is a key factor for more than half of drivers who are leaving the industry.

“This cannot be overlooked. But sadly, as with so much else to do with contractors and the self-employed, that is exactly what government is doing yet again: overlooking this vital sector.”

CEST – The importance of human intervention

Many contractors have been left with an undetermined or unexpected result regarding IR35 from the HM Revenue & Customs’ (HMRC) CEST (Check Employment Status for Tax) tool.

However, in light of recent data from HMRC, experts are calling on contractors to seek expert advice from a human to appeal unfair decision.

HMRC’s latest figures show that the indetermined rate of CEST is as high as 22 per cent, meaning that more than a fifth of the results provided do not deliver a status outcome for employers – leaving them with difficult decisions about a person’s IR35 status.

Chris Mattingly, CEO of IR35 Navigator, said: “The number of outcomes where the decision is undetermined continues to rise. This demonstrates that automated tools, such as CEST, cannot be relied upon to decide a worker’s employment status for tax.

And Finally – Man launches ‘mission to collect chip from every Wetherspoon in UK’

There are 925 Wetherspoon pubs across the UK and it is the mission of Boris Bennett to collect a chip from each one.

Boris is passionate about his quest and carries a folder of chips around with him to document his journey – each labelled and stored securely in a clear pouch.

His eccentric hobby came to light on Wetherspoons Paltry Chip Count – a Facebook page dedicated to Wetherspoon fanatics who count how many chips they received with their meal (yes, this really does exist).

Although some people have said the challenge must be a wind-up or PR stunt, Boris insists he is deadly serious and has said that he uses Vaseline and wax to prevent his collection going mouldy.

Since posting his collection, it has gone viral, collecting tens of thousands of likes and comments across social media.

In a recent interview with the Metro, Boris said: “I decided to do it because I thought it would be funny to other members of the group, and also because it gives me an excuse to travel the UK to all the pubs.

“I’m trying to just get to as many as possible, if I get too tired, I might pass the baton on to a fellow chip enthusiast.”

In response, Wetherspoon has said that Boris is “one of a kind” and congratulated him on his challenge.

A spokesperson for the pub chain added: “Wetherspoon has numerous fans who love to visit all of the pubs and record their visits. Others take photos of the carpet, but this gentleman is one of a kind. We wish him well in his venture and hope he manages to achieve his aim.”

Autumn Budget 2021

With the Speaker of the House of Commons by tradition not presiding over the Budget, the Chancellor might have hoped he would escape a rebuke over the number of important announcements disclosed to the media in advance.

That was not to be, with the Chancellor instead receiving a ticking-off from Dame Eleanor Laing, the Chairman of Ways and Means, who takes charge on Budget day.

Before Rishi Sunak rose to the despatch box, we already knew the public sector pay freeze would end. The Treasury had also confirmed there would be £5.7 billion for public transport in city regions, £5.9 billion to tackle waiting lists in the NHS, an increase in the National Living Wage to £9.50 an hour, £1.8 billion for housing on brownfield sites, as well as further cash for education.

The question, then, was what the Chancellor was saving for the Budget and whether this would include any significant tax changes.

The 2021 Spring Budget marked a post-pandemic turning point in the Government’s approach to tax and spending. Already this year, the Government has announced several significant tax rises. Corporation Tax is rising in 2023 and next year will see Dividend Tax and National Insurance Contributions rise by 1.25 percentage points.

Any taboo around tax rises had been blown apart. But, at the same time, the cost of living has risen rapidly, putting pressure on households and businesses.

The question, then, was how the Chancellor would balance the cost of the spending plans already set out and the need to recognise the pressure on households and businesses against his desire to repair the public finances following the pandemic.

Would taxes rise and, if so, who would be the winners and losers?

The economy and public finances

In contrast to his two previous Budgets in Spring 2020 and Spring 2021, the Chancellor struck a strikingly optimistic tone about the country’s economic prospects.

He said that forecasts from the independent Office for Budget Responsibility (OBR) predict economic growth of 6.5 per cent this year, with the economy returning to its pre-pandemic size at the beginning of 2022.

Next year, the OBR expects GDP to rise by six per cent, followed by increases of 2.1 per cent in 2023, 1.3 per cent in 2024 and 1.6 per cent in 2025.

The forecast is significantly better than that presented at the Spring Budget when the OBR predicted economic growth of four per cent this year.

Meanwhile, the OBR’s forecasts for long-term economic scarring as a result of the pandemic and for unemployment have been cut from three per cent to two per cent and 12 per cent to 5.2 per cent respectively.

Acknowledging the increasing pressure on households and businesses, the Chancellor said that inflation is predicted to average four per cent next year.

Turning to borrowing, the Chancellor announced a revised Charter for Budget Responsibility, which will require that:

  • Debt falls as a percentage of GDP in normal circumstances
  • Borrowing is restricted to investment in future growth and not used for day-to-day spending
  • Public net investment does not exceed 3.5 per cent of GDP on average

He said these rules have been met.


Spending review

Moving to the spending review, the Chancellor said there would be real terms increases in spending for every Government department, with overall spending over the parliament rising by £150 billion, averaging 3.8 per cent a year.

He said local authorities will receive grant funding of £4.8 billion, while overseas aid will once again reach 0.7 per cent of GDP by the end of the Parliament.

The Chancellor went on to say that schools funding for each pupil will return to 2010 levels and a tripling of investment would create 30,000 new special school places.

He then set out 1.7 billion of Levelling Up funding for places include Stoke, Leeds, Doncaster and Leicester.

Next, he said there would be £21 billion for roads and £46 billion for railways as well as funding to bring public transport in regional cities in line with that available in London.

Finally, he outlined a £3.8 billion investment in skills and training.


Science and technology

Moving to his plans for science and technology, the Chancellor said that Government research and development (R&D) spending would reach £20 billion by 2024-25 and £22 billion by 2026-27.

However, he said there were problems with the way R&D tax reliefs have been working, announcing plans to expand them to cover investment in cloud technology and data, but also to restrict their use to domestic activities. He did not set out what would constitute domestic activities.

Elsewhere for science and technology, he announced the launch of visa programmes for highly skilled individuals.

He also confirmed a new UK Shared Prosperity Fund worth £2.6 billion to boost skills.


Hospitality, arts and culture

Hospitality was a significant theme in the Budget, with the Chancellor making several announcements targeted at the sector.

400,000 properties used by retail, hospitality and leisure businesses will be able to benefit from a 50 per cent business rates discount.

Meanwhile, the Chancellor announced extensive changes to alcohol duties, which included simplifying the banding to ensure the drinks with the highest alcohol content had higher duties and those with the least alcohol, the lowest duties.

He said this would mean high percentage drinks would attract more duty and the lowest percentage drinks would attract less than they have done until now.

Meanwhile, Small Brewers will be expanded to other small alcohol producers, while there will also be reliefs for draught beers and sparkling wines.

Turning to the arts and culture, he said tax reliefs for the sector would be doubled and extended until March 2024.


Business and personal taxes

Before the Budget, there was some suspicion that business and personal taxes might be at the forefront of the Chancellor’s announcements. However, that turned out not to be the case with them receiving relatively little attention in the speech itself.

The Chancellor made no mention of the Capital Gains Tax (CGT) and Inheritance Tax (IHT) reforms that had been predicted in some quarters.

Instead, he turned his attention to business rates, saying he would not heed calls to scrap them, instead opting for more frequent revaluations every three years, starting in 2023; introducing an investment relief for green technologies and an improvements relief that would delay increases in rates, in the following 12 months; as well as cancelling the planned increase in the multiplier.

Away from business rates, the Chancellor confirmed a further extension to the £1 million Annual Investment Allowance until March 2023.

He said that, as expected, the planned increase in fuel duty would be cancelled. Also expected, was confirmation that the National Living Wage will rise to £9.50 in April 2022.

The Chancellor announced details of the Residential Property Developer Tax, announced in February 2021, confirming a four per cent levy on companies and corporate groups’ profits from UK residential property, where they exceed £25 million a year.

While not announced in the Budget, the documents published after the Chancellor sat down confirmed that the deadline for paying Capital Gains Tax (CGT) on property would be extended from 30 to 60 days.


Conclusion

The Chancellor struck a markedly different tone from his Spring Budget, with optimism that could have been mistaken for the Prime Minister.

There were no new major tax rises and good news for the beleaguered hospitality sector.

Strikingly, the Chancellor felt sufficiently optimistic to say he planned to see taxes going down by the end of Parliament.

Whether that ambition will come to pass will depend on whether the economy meets the new, more upbeat expectations set out by the OBR.

Official documents link

CAPTCHA image