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Autumn Statement for Contractors

Contractors Receive a Mixed Picture from The Autumn Statement

We noted recently that contractors would be taking a keen interest in yesterday’s Autumn Statement. It offered a chance not only to gain insight into the future economic direction of the country, but also to understand the government’s attitude towards contractors and clarification on the IR35 reforms, which many thought could put contractors off working in the public sector.

Unfortunately, on both counts, there’s some cause for concern within the Autumn Statement. Firstly, on the wider picture, the UK economy is forecast to be £122bn worse off by 2020, borrowing is up and growth is down.

And, on the IR35 reforms, it is now clear that from April 2017, the responsibility for determining the status of public sector Limited Company contractors will fall on the party that pays them, rather than on contractors themselves.

The likely consequence of this is that risk-averse recruitment agencies and employers will simply put all contractors on payroll; the rules are too complex and the time required to assess every engagement individually is too demanding to produce any other likely outcome.

Contractors will either refuse public sector contracts or will begin demanding a higher rate to compensate for the greater tax liabilities they will face when taking these roles. That’s bad news for contractors but it’s also bad news for the public sector, which will either struggle to fill vital roles or will have to spend more doing so.

On top of this contractors are taking a further hit because IR35’s five per cent tax-free allowance for business expenses will now be removed from public sector contractors, as they no longer “bear the administrative burden of deciding whether the rules apply”.

The government is also set to make changes to the Flat Rate VAT Scheme, introducing a new 16.5 per cent rate that will hit contractors, without even a consultation. Draft legislation on this will be issued on 5 December 2016, with a short period of consultation on how the legislation will operate prior to 1 April 2017.

Despite this, the Autumn Statement also contains some positive news for contractors.

Corporation tax will fall to 17 per cent, as planned, benefiting contractors who have set up as a limited company.

Meanwhile, funding for large-scale infrastructure projects will likely create employment opportunities for those working in relevant sectors. These include construction, which receives a boost from a £2.3bn Housing Infrastructure Fund for 100,000 new homes and a £23bn national productivity investment fund focused on infrastructure.

And, in what could also be a positive, the chancellor has abolished the Autumn Statement – given that measures favourable to the industry are rare and constant regulatory changes are a distraction from contractors’ day jobs – it seems likely this is good news.

So, much like the contracting market in recent months, the picture from the Autumn Statement is mixed. We’ll be closely monitoring how these changes are affecting the industry. We’re also always happy to discuss any queries, so if there’s anything you’d like to clarify at this point, do get in touch.