IR35 April 2023 changes and budget summary.
As of 17 October 2022, Jeremy Hunt reversed virtually all changes announced by Kwasi Kwarteng on 23 September 2022. All that remains are the NIC cut, and stamp duty changes.
A few surprises in Kwasi Kwarteng’s “mini” budget on Friday 23 September 2022. The main one of significance to contractors being (yet more) IR35 changes. IR35
Kwasi’s proposed change are NOT happening, rules remain as they are, end client typically deciding IR35 status.
What’s changed with IR35? From April 2023, IR35 reverts to pre 2017 rules. You as contractor will again decide your IR35 status, not the end client. This will apply whether the client is public or private sector, big or small, UK or overseas. Is this good news? Sort of. Many big corporates played it safe with previous changes, making all contractors inside IR35. This forced many onto payroll/umbrellas. From April 2023, you can use a Ltd Co & treat it as outside IR35 again if you’re happy you meet the rules. That’s great, right? Again, sort of. Key thing to stress is IR35 is NOT being abolished. You are regaining the decision making. You’re also regaining the risk of your decision being deemed wrong, and costs if it is. What should I do? If your client now says your work’s inside IR35, staying in same role, same client, but you deeming it outside post April 2023 is risky. Gain a decent understanding of IR35, and consider QDOS for contract reviews/insurance. What are the IR35 rules again? The underlying logic hasn’t changed. Our almost a decade old guide on IR35 is as valid now as it was when written…but the reality is it’s still as grey as ever!
OTHER ROLL BACKS
Corporation tax increase reversed Rishi’s previously proposed increase to 25% for profits above £250k is pressing ahead from 1 April 2023. Marginal tax rate to remain 19% on profits to £50k, increase to 26.5% on profits £50k-250k, and 25% on profits >£250k. This hadn’t yet been put in place, but it was planned for corporation tax to rise to 25% from April 2023 for all but the smallest companies. This has been reversed, so it will remain at 19%. Dividend tax increase reversed The recently implemented 1.25% dividend tax increase will be reversed from April 2023. This will take the rate back to 7.5% for basic rate taxpayers, and 32.5% for higher rate.
National Insurance increase reversed Jeremy Hunt has NOT changed this (as impact already underway), so Kwasi’s reversal is pressing ahead
The recently implemented 1.25% NIC increase will be reversed from November 2022. This will take employEE’s NICs for most employees back to 12%, employER’s NICs back to 13.8%, and class 4 NICs (for sole traders) back to 9%.
Income tax basic rate cut It had been previously announced that this would drop from 20% to 19% from April 2024. This is being pulled forward to April 2023. Income tax additional rate cut Those earning >£150k currently pay 45% tax on that top slice. This band is being abolished, so 40% higher rate (or 32.5% when dividends) will remain all the way up. NB you still lose your personal allowance gradually from £100k income. NB the above income tax changes do not (at least currently) apply to Scottish residents.
Stamp duty cuts Jeremy Hunt has NOT changed this (as impact already underway)
From 23 September 2022, there’ll be no stamp duty on properties up to £250k (was £125k). For first time buyers the threshold goes up to £425k (was £300k).
Annual investment allowance We believe this is continuing to be the case (though our clients never spend >£250k on equipment in a year!)
Will remain at £1million (was planned to drop to £250k)
WHAT’S THE OVERALL IMPACT? High earners will do well. Tax cuts across the board, but skewed mostly towards the highest paid. IR35 changes may bring flexibility/more opportunities back into the contracting market, but risk on the individuals again. The budget deficit is all but guaranteed to rocket (cost of energy bills support adding to tax cuts above).