'Back to work' budget ignores IR35 and confirms corporation tax increase will go ahead
In a Spring Statement labelled the ‘back to work’ Budget, the Chancellor outlined the government’s fiscal plans for the coming years.
Early in his speech, Jeremy Hunt announced that the UK will not enter a “technical recession” this year, describing this as a “Budget for growth.”
However, the Chancellor’s failure to focus on the IR35 legislation and, crucially, his confirmation that Corporation Tax will be increased this April has left many contractors concerned.
At a glance, here are the key points for contractors and the self-employed:
- There will be no change to IR35. Neither the IR35 legislation itself nor the off-payroll working rules were addressed during the Chancellor’s hour-long speech. Nor were they mentioned in the Budget 2023 document.
- The increase to Corporation Tax will come into effect on 6th April 2023, as planned, rising from 19% to 25%. However, the headline rate will only apply to businesses with profits greater than £250,000 (or around 10% of businesses in the UK). The Chancellor was at pains to point out that, despite the increase, the UK has a low rate compared to other G7 countries.
- On tackling tax avoidance, the government will consult on the introduction of a new criminal offence for promoters of tax avoidance, including disqualifying directors of companies involved in promoting tax avoidance. HMRC will also be granted more funding – an additional £47.2m – to police this.
- The Lifetime Allowance on pension contributions will be scrapped, and the annual tax-free allowance will increase from £40,000 to £60,000. This will reduce the amount of tax that earners pay on their pension pot.
Alongside these major announcements, the Chancellor also put forward the following items in the Spring Statement:
- Childcare support increased — Parents will be entitled to 30 free hours of childcare per week, under new plans which will be rolled out from April 2024. The entitlement will begin at the end of maternity or paternity leave, and children aged between 9 months and three years old will be eligible.
- Energy bill support extended – The Energy Price Guarantee has been extended until the end of June, with support for households.
- Fuel duty frozen – The freeze on fuel duty has been extended for a further 12 months to reduce financial pressures.
- End of the ‘super-deduction’ – A tax break on business investment, the super-deduction scheme will be replaced by full capital expensing. It means money invested in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.
The failure to address IR35 is consistent with Hunt’s reversal of IR35 reform at the emergency Autumn Statement, though it’s at odds with the government’s aim to get skilled and experienced workers back into the workforce.
This was a point our CEO, Seb Maley, made immediately after the Chancellor’s speech:
“Anyone working for themselves has a right to be deeply disappointed by this Budget”.
“There are 4.3m self-employed people in the UK who contribute hundreds of billions to the economy every year. Why isn’t more being done to support them?
“The Chancellor completely ignored the IR35 legislation in his speech. This smacks of irony in a so-called ‘back to work’ Budget. The government wants retirees to return to work but won’t address the issues plaguing IR35 reform. These tax changes forced many freelancers and contractors into early retirement, at a huge cost to the economy.
“Fix IR35 and retirees might be attracted back, solving skills shortages and boosting the economy. It’s a simple solution to what is a massive problem.”
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