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3 things contractors should know about Rishi Sunak’s economic update: IR35 reform, £1000 bonus and ExcludedUK

3-minute read

Sam Bromley

20 July 2020

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The Chancellor held an economic update on 8 July to announce further support for businesses, but experts are continuing to criticise the government’s approach to contractors and freelancers.

In his update, which has been called both a Summer Statement and a mini-Budget, Rishi Sunak announced a number of measures to restart the economy. These include:

  • Eat Out to Help Out, which gives diners money off meals at restaurants
  • new bonuses for firms taking on trainees and apprentices
  • a stamp duty cut on properties worth up to £500,000

For contractors and freelancers though, many found the Chancellor’s statement lacking. Here’s the reaction.

1. Businesses “do not need to implement and adjust” to IR35 reform

Off-payroll working reform in the private sector was due to be introduced in April, but the government has delayed it by a year because of coronavirus.

Off-payroll working rules are more commonly known as IR35. If you’re ‘inside IR35’, you’re classed as an employee for tax. If you’re ‘outside IR35’, HMRC sees you as legitimately self-employed and you’ll generally pay less tax.

The 2021 reform means that larger hirers will be responsible for working out a contractor’s IR35 status for tax, not the contractor themselves.

The Chancellor didn’t mention IR35 reform during his announcement. Instead the government mentions it in the accompanying policy paper, ‘A Plan for Jobs 2020’.

There, it says the delay “means that businesses and individuals do not need to implement and adjust to the reform while dealing with the economic impact of COVID-19.”

But experts have pointed out that this suggestion is flawed, as the economic impact of coronavirus is likely to be felt for some time. What’s more, eight months still doesn’t give contractors and businesses much time to prepare for the change.

Patrick Gribben, from Intouch Accounting, told ContractorUK: “The economic impact of Covid-19 is likely to last several years. So does that mean then the roll out of reform to IR35 in the private sector will be delayed for several years?”

2. £1,000 Job Retention Bonus “falls significantly short”

The Chancellor is winding down the Coronavirus Job Retention Scheme (CJRS) and replacing it with the Job Retention Bonus.

The CJRS lets businesses put employees on leave rather than letting them go, with the government covering 80 per cent of wages initially. The scheme is due to end on 31 October.

In its place, the Job Retention Bonus is a £1,000 payment to employers for each furloughed employee they bring back and keep until January 2021.

Employees need to earn above £520 a month on average between the end of the CJRS and January 2021. Bonus payments will be made in February.

Julia Kermode, Chief Executive of the Freelancer & Contractor Services Association (FCSA), said: “for umbrella employers and agencies who operate a very different employment model, the £1,000 per employee bonus falls significantly short of the total financial cost for an umbrella employer or recruitment agency to continue to furlough their employees until the CJRS scheme ends...

“Furthermore, there was no mention of any additional financial help for the self-employed or limited company directors who seem to be forgotten.”

The Independent reports that the Chancellor has defended the bonus, despite admitting that it’s potentially going to be wasted on jobs that would’ve been kept anyway. The Chancellor told the House of Commons Treasury Committee that the bonus would still “serve as a significant incentive and reward.”

3. The Chancellor should “urgently address the disparities”

While the government has supported both employees and the self-employed through schemes like the CJRS and the Self-employment Income Support Scheme (SEISS), there’s still a significant number of people who aren’t eligible for any financial help.

The pressure group ExcludedUK has been set up to raise awareness of that disparity. ExcludedUK estimates that three million people have been left out of Rishi Sunak’s support so far, including freelancers, limited company directors and the newly self-employed.

In our own survey of small businesses and the self-employed, we found that 17 per cent were both unable to work and couldn’t claim for the SEISS.

ExcludedUK hoped the Summer Statement would address those forgotten by the current measures. But with no support announced in the update, the group said “those excluded cannot look forward to the future with any hope.”

Since the Summer Statement, Rishi Sunak has confirmed to the House of Commons Treasury Committee that there “wouldn’t now be the opportunity to have new schemes.”

With ExcludedUK gaining momentum and support from figures including MoneySavingExpert’s Martin Lewis and over 200 cross-party MPs, will the Chancellor be forced to reconsider his options?

What do you think about the Chancellor’s Summer Statement? Let us know in the comments below.

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