Budget 2020: IR35 paying for tax cuts
The incoming changes to IR35 are being used to pay for the “generous” tax cuts in today’s budget, according to Smith & Williamson’s employment tax and incentives partner, David Yewdall.
“I think a lot of the funding for these generous tax cuts is going to come from IR35,” Yewdall says.
“The contradiction here is there is a huge focus on supporting businesses in the coming months, and so on the left hand there is something granted – which is generous. On the right hand there is worry and anxiety regarding the safeguarding of contractors, some being essential to the operation of these businesses, as the implementation [of IR35] goes ahead.”
Ultimately though, it is the right hand of “worry and anxiety” which will be felt most keenly.
“I think the right hand is certainly going to outweigh the give on the left,” he says.
IR35 wasn’t mentioned in Chancellor, Rishi Sunak’s budget speech, signalling that it is full-steam ahead for the reforms to off-payroll working, according to Yewdall.
“It was alluded today that the government would be looking to focus on anti-avoidance legislation. When we talk about anti-avoidance legislation that is a very, very general statement,” he says. “I think that message was ‘IR35 is not changing’ despite the pressure that the new Chancellor, Rishi Sunak has been under the past three weeks.”
“As a result, I think its clear that HMRC are still very much going ahead with the implementation. Whilst there will be a soft approach for year one, will those individuals who are directors of personal service companies, will they be able to survive when we have the uncertainty ahead in the economy, along with the uncertainty regarding their position working for their clients?”
In his speech, Rishi Sunak said: “I’m announcing a package of measures today to clamp down on aggressive tax avoidance, evasion and non-compliance including extra funding for HMRC to secure £4.4bn of additional revenue.”
Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher says the decision by the Chancellor not to mention IR35 in his budget speech was “disappointing”.
“There’s a lot of ambiguity in this,” he says. “The Chancellor hasn’t actually taken the opportunity to look at this properly and decide whether this is actually practical.”
Walford-Fitzgerald believes the government are looking at the legislation only from a tax perspective, arguing that two people doing the same job should pay the same tax but ignoring the other factors.
“That ignores the reality that those two people have different rights and different contractual relationships. Simply looking at it from the tax perspective ignores the wider picture,” he says.
Darren Fell, CEO and founder of accountancy firm Crunch, added that while many measures were announced to help SMEs, the budget didn’t help entrepreneurs.
“The Chancellor missed the opportunity to help entrepreneurs. He didn’t mention IR35 in today’s budget. Extending IR35 will deoxygenate the economy and criminalise potential entrepreneurs.
The freelancer is the seed from which most small businesses grow, and fewer contractors means fewer start-ups,” Fell said in an email.
“It’s a giant mistake, reeking of short-term thinking and arrogance. Extending IR35 has already disrupted thousands of contractors’ financial security, family lives, and mental health. Talented people with sought-after skills have left contracting altogether, further damaging an economy heading for recession,” he added.