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IR35Latest NewsDepartment for Work and PensionsJob creation and lossesLabour market

Hunt reverses tax cuts including repeal of IR35 reforms

by Adam McCulloch 17 Oct 2022
by Adam McCulloch 17 Oct 2022 Photo: Shuttestock
Photo: Shuttestock

New chancellor Jeremy Hunt has announced that the government will no longer reverse the off-payroll IR35 reforms announced in the mini budget.

Hunt said: “We will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”

However, national insurance paid by companies will not rise because the health and social care levy it was intended to fund has been scrapped.

Hunt said it was not right to borrow more money in order to pay for tax cuts, as he announced that the cut to the lower tax rate of 20% would not now go ahead. From April any support will be targeted on those who need it most.

The Energy Price Guarantee, much lauded by the government in recent weeks, will not now run for two years, said Hunt, but only until April. This move brings it into line with Labour’s original proposal for the length of the guarantee, which ministers had been highly critical of while Kwasi Kwarteng was still chancellor.

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IR35 specialist Qdos described Hunt’s statement as a “knee-jerk reaction”. Qdos CEO, Seb Maley, said: “I’m lost for words. Cancelling the repeal of IR35 reform is the wrong decision at the wrong time. It’s a knee-jerk reaction from the government and, in my opinion, won’t benefit the economy.

“IR35 reform damages the flexibility of the UK labour market, which is key to economic growth. Many contractors left the sector after risk-averse businesses stopped engaging them. Repealing reform would have opened the floodgates – a catalyst for the recovery of this sector.

“With IR35 reform now remaining in play, businesses must continue prioritising compliance. The legislation is complex and navigating it can be a challenge, but with the right approach can, in fact, be managed.”

Employment services body FCSA said it was disappointed by Hunt’s announcement. Chris Bryce, FCSA’s chief executive, said the scrapping of the rollback of the 2017 and 2021 IR35 rules would “add to the confusion in the contractor marketplace and will also do nothing to improve the agility and flexibility contractors offer UK plc”.

He added, however, that he was pleased to see the 10% rise in national insurance contributions dropped by his predecessor was remaining. He conceded that: “The government realistically had little choice but to dance the Hokey Cokey on Kwasi Kwarteng’s so-called mini-budget. Markets and businesses react badly to uncertainty and steeper borrowing, and I hope that a steadier hand on the tiller will give both the markets and our industry some stability in the medium term. What is clear is that Liz Truss’ economic views have been supplanted by Hunt’s and the immediate market reaction indicates that it’s unlikely she’ll be able to credibly speak on fiscal policy for quite a while, if ever.”

Initial market responses to Jeremy Hunt’s statement appeared to be positive with the pound is holding its earlier gains, still up around one cent at $1.127 and UK bonds are on track for one of their best days in decades, as the yields on the 30-year gilt dropped by nearly 40 basis points to 4.385%, marking one of its biggest daily drops on record.

Matt Fryer, managing director of Brookson Group, an accountancy firm for contractors, said: “Uncertainty isn’t helpful for hirers or contractors, particularly in today’s economic climate. At least retaining the current off payroll working rules takes us back to the position we were in a few weeks ago and gives us a bit of certainty. However, it is clear now that the government acknowledges the current rules aren’t working as expected.

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“If the rules stay in place exactly as they are, more needs to be done by HMRC in terms of education and support for the entire flexible labour market. In the meantime, hirers, recruiters and their supply chains must ensure they are compliant with the rules currently in place. The IMF and markets have strongly indicated that the Treasury must rebalance the books through taxation, so HMRC will be proactively seeking to recoup tax liabilities in the years to come.”

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Adam McCulloch

Adam McCulloch first worked for Personnel Today magazine in the early 1990s as a sub editor. He rejoined Personnel Today as a writer in 2017, covering all aspects of HR but with a special interest in diversity, social mobility and industrial relations. He has ventured beyond the HR realm to work as a freelance writer and production editor in sectors including travel (The Guardian), aviation (Flight International), agriculture (Farmers' Weekly), music (Jazzwise), theatre (The Stage) and social work (Community Care). He is also the author of KentWalksNearLondon. Adam first became interested in industrial relations after witnessing an exchange between Arthur Scargill and National Coal Board chairman Ian McGregor in 1984, while working as a temp in facilities at the NCB, carrying extra chairs into a conference room!

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