Autumn Statement 2022: Where the self-employed need the chancellor to help
Scheduled for this Thursday week – that’s November 17th 2022, new chancellor Jeremy Hunt’s incoming ‘tax rise and spending cut’ package was originally due on October 31st, as the more subdued “Medium-Term Fiscal Plan.”
But due to all the political and economic chaos of late, you’ll be forgiven for missing the fact that it has been upgraded to a ‘full’ Autumn Statement, indicating freelancers and the self-employed now face potentially more implications than they may have otherwise faced from a plan simply put up on Halloween, writes Graham Jenner, founder of Jenner & Co, an accountancy firm serving independent workers.
Confusion, dreams, and next -- 'eye-wateringly difficult' decisions...
What the UK will get from Mr Hunt could be termed a ‘mini-budget’ but confusingly, the UK has only just received Mini-Budget 2022 from the-then Liz Truss-led government under the-then chancellor Kwasi Kwarteng. That Mini-Budget was delivered by Mr Kwarteng on September 23rd 2022, and further confusingly, much of its contents have already been shredded -- by the current government at the command of new prime minister Rishi Sunak, himself a former chancellor who replaced Ms Truss on October 25th. Keeping up freelancers?!
On reading the script of Mr Kwarteng’s speech, which was confidently called “The Growth Plan 2022”, hasty freelancers in a rush might think that they were being sold a dream of a better UK – a country where we could simply ‘grow’ our way out of financial challenges. Unfortunately, that ‘dream’ spooked the markets, and the pound slumped against the dollar.
A subsequent ‘emergency statement’ from Kwarteng’s replacement, Mr Hunt, shredded much of the growth plan, fortunately with the effect of steadying the markets. But now, with his predecessor’s mistakes corrected, Hunt has to deliver his own mini-budget at Autumn Statement 2022. And from his comments of late, that “some eye-wateringly difficult” decisions will need to be made to balance the books, all taxpayers (self-employed included), must expect significant public spending cuts alongside increases in taxation.
As is the norm at Budgets, it is likely that much of the taxation increases will be via ‘stealth taxes.’ Chief among those, we’ll hear Hunt on the 17th confirm the freezing of income tax allowances (already scheduled to be frozen for four years) to be extended until April 2028, aside to the more populist ‘windfall taxes’ on oil and gas companies. And the banks.
Freelancers provide the flexible workforce we need
Much is made of the fact that the self-employed (and contractors who traditionally run their own limited company), pay less tax and national insurance than they would if they were an employee. Following on from that, we often hear the self-employed aren’t paying their “fair share.”
From advising them, I can tell you that the self-employed might very well argue back, saying that they don’t have the same rights, protections and securities as employees. And so, they’d say, they absolutely should not pay the same level of tax.
Should Hunt be reading, I’d like to point out that taxation and in particular, tax breaks, are often used as a deterrent, or an incentive, to do something. Right now the UK needs a flexible workforce and self-employment is one of the key ways of achieving that flexibility. The UK also needs entrepreneurial people to start businesses (invariably self-employed on day one), and these businesses might grow to employ other people.
The two chancelllor announcements that the UK gets
High taxes and national insurance are a disincentive for people to take the risks associated with self-employment. So, when chancellors want to encourage people to be self-employed they will make grand announcements akin to:
‘To encourage entrepreneurs and start-ups, I am today announcing a range of measures to reduce the burden of taxation on the self-employed.’
Conversely, when such activity is less important to the economy and, say, the government needs additional taxation revenues, chancellors change tack to announce:
‘It is only fair that the self-employed pay similar tax to an employee, I am today therefore announcing a range of measures to redress the balance…’
I’m being a bit tongue-in-cheek with the above, and to be clear, neither are actual chancellor announcements I’m predicting in the future or reproducing from the past. But I am drawing on Budget announcements of yesteryear, because the two fictional quotes above illustrate that taxation policy is determined by the chancellor of the day’s perception. The perception from Number 11 Downing Street of what is needed for the UK at the time.
The shredded Mini-Budget didn't shred much affecting sole traders
Looking at the medium and long term as well as the short-term, different chancellors have different perceptions. We have seen this all too clearly with Hunt scrapping large chunks of Kwarteng’s Mini-Budget.
Positively, perhaps, the non-limited company self-employed in the UK were largely untouched by Kwarteng’s proposals and so are largely untouched by their shredding.
Moreover, not even our fast-fingered accountants had time to really tot up their impact on take-home pay, because they got shredded almost as quickly as they were announced!
The missed opportunity of revoking IR35 reforms
The one major provision in Kwarteng’s Mini-Budget that affected freelance professionals was confined to those of them who operate through their own limited company. And that provision was the repeal of IR35 reforms. Many end-clients have, since the introduction of the off-payroll reforms (in the public sector on April 6th 2017 and in the private sector on April 6th 2021), struggled to find contractors willing to take on projects categorised as inside IR35. Career-stunting for workers, and risking project-mothballing across the UK, some end-users simply haven’t permitted contractors to use limited companies from those dates, due to the fear of them falling foul of HMRC liabilities if they get the IR35 determination wrong.
Kwarteng’s repeal would have regenerated the flexible workforce, which is much-needed by many public and private sector organisations. Perhaps more importantly, the repeal of the reforms would have brought to an end the unfair effect that the reforms were having (and now are still having), on those workers whose contract is genuinely outside IR35, but cannot operate on that commercial basis due to the client banning all limited company suppliers outright.
Unfortunately, Hunt has shredded the repeal of the off-payroll reforms. And it remains to be seen whether he will propose any further changes. But he should.
So what do we need for the self-employed from Hunt at Autumn Statement 2022?
1. No alternative to the Health and Social Care Levy
The Health and Social Care Levy, set to apply from April 6th 2023, was scrapped at Kwarteng’s Mini-Budget, and Hunt retained that cancellation. Today’s chancellor apparently concurs with his predecessor’s comment that “We believe that high taxes reduce incentives to work, they deter investment and they hinder enterprise.”
Kwarteng had indicated that funding for the NHS, the health sector at large, and social care that would have come from the levy, would be funded from elsewhere. My hope is that Hunt looks on the 17th to fund this from other sources, such as the windfall tax on oil and gas companies, on banks; and perhaps even by higher rates of Capital Gains Tax (and/or lower allowances.)
2. Give a new personal tax allowance to those who are self-employed.
To encourage flexible work, such a targeted allowance for the self-employed could be easily incorporated into their self-assessment tax return.
3. Incentives for small businesses to take on employees, particularly their first one or two.
To ensure micro-enterprise has the incentive to expand, this is something else that Hunt could target at striving, entrepreneurial, enterprising individuals.
4. Assistance for enterprises-owners to take on property, not just in Investment Zones proposed by Kwarteng, but generally.
The former chancellor’s promised help for six regions was exciting and like the recommended incentives for one-person entities (see 3, above); it could elevate lifestyle businesses beyond just providing for themselves.
5. Repeal the IR35 reforms
For the many sole trader freelancers who go on to incorporate their business, this is a key move I’d like to see from Hunt on the 17th, because his predecessor got this measure right.
Even HM Treasury introducing a requirement for the worker’s personal service company (limited company) to prepare and retain a Status Determination Statement for each contract would be better and less onerous than the current regime, as long as the IR35 status decision can return to where it ought to be – with the worker.
Whatever chancellor Hunt does next Thursday, after all the shenanigans with the prime ministerial changes, chancellors coming and going; mini-budgets and emergency statements that shred them, plus of course Medium-Term Fiscal Plans that never were because they were actually Autumn Statements, let’s hope that finally, finally, there is some certainty. Some stability. Some confidence. That’s what is desperately needed.
8th November 2022