Chancellor Jeremy Hunt announced several measures in this year’s Autumn Statement in an attempt to plug the £55 billion ‘black hole’ in public finances.

The statement, delivered to the House of Commons on 17 November, included several tax threshold freezes and cuts in annual allowances.

One of the most important changes was the announcement that the additional-rate tax threshold would be lowered to £125,140, meaning a further 250,000 taxpayers will start being taxed 45% of their annual income.

The personal allowance of £12,570 will continue to be frozen at its 2021/22 level but for two extra years until 2028. According to chartered accountant Richard Murphy, this will increase the burden by up to £400 in income tax.

Hunt also announced Government plans to cut the capital gains tax allowance to £6,000 in 2023 and then to £3,000 in 2024, worth an extra £40m in revenue by 2027.

The Chancellor also delivered a number of support measures for smaller businesses in the UK.

As of April 2023, business rates relief for retail, hospitality and leisure will increase from 50% to 75%, equating to £110,000 per business over 2023/24.

Small businesses will also benefit from a new ‘supporting small business scheme’, which will cap business rate bills at £600 per year for smaller businesses.

Helen Dickinson, chief executive of the British Retail Consortium, said:

“This Autumn Statement supports [retailers] by reducing upwards pressure on prices in the short term and helping retailers protect jobs, keep shops open, and protect the vibrancy of local communities.”

Not everyone is pleased with the changes. Paul Johnson, director of the Institute for Financial Studies, said:

“Jeremy Hunt’s first fiscal event as Chancellor was a sombre affair. Surging global energy prices have made the UK a poorer country. The result is an OBR forecast that the next two years will see the biggest fall in household incomes in generations.”

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The Government’s reversal of the National Insurance contribution (NICs) increase is now in effect as of 6 November.

The majority of working people will begin receiving the 1.25% tax cut in their payslips from November onwards.

The rise in NICs was introduced in April as part of the health and social care levy but was reversed by previous Chancellor Kwasi Kwarteng in the September mini-budget.

The Government had originally planned to use the £12.4 billion it predicted to raise through the levy to reform the social care system and reduce the backlog in the health service.

However, despite the tax cut, the Government has indicated the same levels of funding for the health and social care services will be maintained.

The reversal follows a rise in NI thresholds in July, which, in tandem with the cut to National Insurance rates, will save around 30 million people an average of £500 in 2023, according to HMRC. However, some people may not benefit immediately from the reduction if their employers cannot update payroll processes in time.

These employees are expected to receive the tax cut by February 2023 and should benefit retrospectively once updates are applied.

Speaking on the policy’s effects on business, HMRC said:

“Businesses who currently have NICs liabilities will pay less, allowing them greater scope to invest in their businesses and supporting the overall growth of the economy.”

Talk to us about your payroll.

The Bank of England (BoE) decided to increase the base interest rate from 2.25% to 3% last month in a bid to curb inflation.

The 0.75 percentage point rise is the largest hike since 1989 and the eighth consecutive increase since December 2021.

Updated projections from the Bank’s Monetary Policy Committee (MPC) indicated that the UK would face a “very challenging” two-year recession, with unemployment potentially doubling by 2025.

With inflation climbing at its fastest rate in 40 years, the BoE hopes that raising interest rates will reduce inflation by increasing the cost of personal and business borrowing to lower demand.

While this decision will benefit savers, higher interest will place more burden on people with mortgages, credit card debt and bank loans.

Chancellor of the Exchequer Jeremy Hunt acknowledged how families and businesses would be affected by the higher rates but pledged to “restore stability” to the UK economy and deliver long-term growth.

The BoE said:

“The Committee continues to judge that if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.

“The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

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Introduction

“British families make sacrifices every day to live within their means, and so too must their Government, because the United Kingdom will always pay its way.” – Chancellor Jeremy Hunt

 As Jeremy Hunt took to the dispatch box just 34 days after taking on the role of Chancellor of the Exchequer, all eyes were on him.

Following the dramatic sacking of Kwasi Kwarteng after his October mini-budget unleashed market turmoil, a swift change in Prime Minister, and an ever-burgeoning cost of living crisis, Hunt promised that today’s Autumn Statement (delayed from 31st October) would ensure his tax and spending plans would “stand the test of time”.

With food prices in the UK rising at their fastest rate for 45 years, and the Bank of England warning that the nation is facing its longest recession since records began, Hunt’s focus, he claimed, would be “economic stability and restoring confidence that the United Kingdom is a country that pays its way”.

New fiscal rules, announced by Hunt in the statement, dictate that public sector borrowing as a percentage of GDP must fall and be below 3% within a five year period. That left Hunt with a “black hole of around £55bn in public finances” to plug – either through spending cuts or tax rises.

Set on such a stage, the Chancellor’s inaugural Autumn Statement proved to be quite unlike any other seen since the days of the coalition.

Acknowledging that the UK is currently in recession while reiterating that the Government’s three-fold priorities (stability, growth and public services) will help rebuild the economy and reduce debt, Hunt went on to announce a barrage of tax hikes, spending cuts and threshold freezes.

We’ve outlined the highlights of the statement and what it means for you and your business, below.

Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information in this report is based upon our understanding of the Chancellor’s 2022 Autumn Statement, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.

 This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. Pension eligibility depends on individual circumstances.

 Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

Economic outlook

Hunt began his statement with a summary of expectations for the economy according to the Office for Budget Responsibility, which is required to publish an economic report at least twice a year.

The objective of the reports by the OBR is to summarise the UK economy, taking into account the changes made to national spending and the tax system in the accompanying Budget document.

The summary of the OBR report has long been anticipated, after the lack of such a report in Kwarteng’s mini-budget in September contributed to the market backlash that eventually led to his departure.

The economic forecast, released one day after the Office for National Statistics revealed inflation (excluding owner occupier housing costs) had hit 11.1% in the year to September – the highest level since October 1981 –  proved to be sombre listening.

The UK is currently in a recession, according to the OBR, which will last “just over a year from the third quarter of 2022, to a peak-to-trough fall in GDP of 2%”. In 2023, GDP is expected to fall by 1.4%.

“Without the fiscal support to households and businesses provided by the energy price guarantee and other measures announced since March, we estimate that the recession would be 1.1 percentage points deeper”, the OBR wrote.

GDP will rise by 1.3%, 2.6%, and 2.7% in the following years, according to the OBR’s forecast, while the economy will recover to its pre-pandemic level in the fourth quarter of 2024 as inflation begins to fall.

Overall this year, the economy is still forecast to grow by 4.2%, however.

The OBR said inflation had already peaked at a high of 11% in the current quarter and would be dropping “sharply” in 2023, dragging “below zero” in the middle of the decade, and returning to the target of 2% in 2027.

Rising prices will erode real wages and reduce living standards by 7% over the two financial years to 2023/24, wiping out the previous eight years’ growth, according to the OBR.

Meanwhile, unemployment will rise by 505,000 from 3.5% to a peak of 4.9% in the third quarter, according to the report.

On public debt, Hunt confirmed two new fiscal rules, dictating that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, and be below 3% of GDP in the same year.

As such, Government plans will borrow a forecasted 7.1% of GDP in 2022, 5.5% in 2023, and 2.4% in 2027/28.

However, the OBR noted that “the Government’s two legislated fiscal targets to balance the current budget and get underlying debt falling in 2025-26 are on course to be missed by £8.7 billion and £11.4 billion respectively”.

Personal changes

A few changes for individuals had already been confirmed ahead of the Autumn Statement, either as part of Kwarteng’s mini-budget or its aftermath:

• Basic-rate income tax remains at 20% “indefinitely”. While Rishi Sunak originally announced the rate would drop to 19% from April 2024 during his previous role as Chancellor, and Kwarteng brought this change forward to 2023, Hunt has since announced the measure will be dropped altogether. The Government says it will save around £6bn a year by doing so.
• National Insurance increase has been scrapped. The National Insurance rise of 1.25 percentage points, which took effect in April this year, was reversed as part of the mini-budget. This measure has been kept in effect, along with the cancellation of the April 2023 health and social care levy.
• Dividend tax rates will remain unchanged. These also increased by 1.25 percentage points alongside National Insurance this April, and Hunt has confirmed they will remain at their increased levels from April 2023.

Additional-rate income tax

One of the biggest announcements made by the Chancellor was the lowering of the additional-rate tax threshold from £150,000 a year to £125,140 as of 6 April 2023.

The additional-rate threshold will be applied to anyone earning more than £125,140 a year in England, Wales and Northern Ireland. The Government will legislate this change in the Autumn finance bill 2022.

It’s predicted the change to the additional-rate threshold will mean 250,000 more taxpayers will now find themselves paying 45%.

This announcement is in stark contrast to Hunt’s predecessor’s plans to scrap the additional tax rate altogether.

Income tax thresholds

The personal allowance threshold will remain frozen for a further two years, continuing until 2028, along with the higher-rate threshold and the National Insurance contributions (NICs) thresholds.

Some are referring to this as a ‘stealth tax’ – where wage increases over time will cause people to find themselves caught in higher tax bands, potentially negating pay rises.

Richard Murphy, political economist, said: “The net effect of freezing tax allowances is that most people will pay more than £400 more in tax next year, and every year thereafter – putting the burden on those least able to afford it.”

National Insurance

In July 2022, NICs thresholds were increased to be brought in line with the income tax personal allowance, and fixed until April 2026. The Chancellor today announced that this freeze will be maintained for an additional two years, until April 2028.

Capital gains tax

In the statement, the Chancellor announced a cut to the capital gains tax (CGT) allowance, also known as the annual exempt amount, over the next two years.

The original allowance of £12,300 will be cut to £6,000 for the tax year 2023/24 and will then be halved again to £3,000 in 2024/25. This means a couple’s allowance will be reduced to £12,000 and £6,000 respectively.

The Government’s aim is to raise an extra £40m by 2027 by reducing the allowance rates for CGT.

Inheritance tax

The inheritance tax nil-rate is currently set at £325,000 until April 2026 and will remain at this rate for a further two years until April 2028.

The residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will still start at £2 million.

Qualifying estates will still be able to pass on up to £500,000, with the qualifying estate of a surviving spouse or civil partner remaining at £1m without inheritance tax liability.

The threshold freeze is seen by some as a way to increase inheritance tax bills without directly changing the rate. Due to the increase in house prices, more and more people will face higher inheritance tax bills when dealing with an estate.

Data published by HMRC in October showed a £400m increase in inheritance tax income when compared to the same time the previous year. These measures will be legislated by the Government in the Autumn finance bill.

Dividend allowance

The Chancellor announced that the dividend tax threshold will be slashed from £2,000 to £1,000 from April 2023 and then again to £500 the following year.

Along with the changes to CGT, the Chancellor says that these changes will raise over £1.2bn a year from 2025. Regardless of your tax band, anyone who receives dividends will be affected by the change.

Pension triple lock upheld

Ending weeks of speculation about whether or not the so-called ‘triple lock’ protection would be upheld, the Chancellor confirmed that pensions – like benefits – would rise in line with September’s inflation rate of 10.1%.

The triple lock refers to a manifesto pledge that state pensions would rise in line with whichever is highest of the following: the average wage increase, the previous September’s inflation figure, or 2.5%.

Acknowledging that the cost-of-living crisis is hurting all pensioners, Hunt announced that in April 2023, an £870 increase will represent the “biggest ever cash increase in the state pension”. The standard minimum income guarantee in pension credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth).

From April 2023, state pension payments will be:

• £203.85 per week (up from £185.15) for those who reached state pension age after April 2016
• £156.20 per week (up from £141.85) for those who reached state pension age before April 2016.

A review of the state pension age is currently being carried out, which considers whether the existing timetable remains appropriate. This will be published in early 2023.

Vehicle excise duty

Electric vehicles will no longer be exempt from vehicle excise duty from April 2025. Vehicle excise duty is a tax on all vehicles using public roads in the UK, and applies differently based on the vehicle’s CO2 emissions.

Stamp duty cuts remain until 2025

One of a few measures to remain initially unchanged from the mini-budget was the decision to raise the threshold at which stamp duty land tax is paid (in England and Northern Ireland) from £125,000 to £250,000.

For first-time buyers, the threshold increased from £300,000 to £425,000. Now, because the OBR expects housing activity to slow over the next two years, these cuts will only remain in place until 31st March 2025 – after which, Hunt will “sunset the measure”.

Business changes

Changes for businesses were also confirmed following Kwarteng’s September mini-budget:

• Corporation tax rises to 25% from 1 April 2023. This increase will go ahead, despite previous plans to scrap it. The full 25% rate will apply to profits of £250,000 and over, while companies with profits up to £50,000 will continue to pay at 19%. Profits between these two figures will be subject to a tapered rate.
• IR35 reforms to stay. Planned changes to IR35 will no longer be repealed, reportedly saving some £2bn in tax. The reforms, which were rolled out in 2017 for the public sector and 2021 for the private sector, saw changes to the way tax status is determined for off-payroll workers, including contractors.
• Bankers’ bonus cap abolished. One of the mini-budget measures left untouched by Hunt was the decision to lift the cap on bankers’ bonuses, which currently stands at 100% of a banker’s annual salary, or 200% depending on shareholder approval. The Prudential Regulation Authority (PRA) is set to consult on plans later this year.
• Alcohol duty freeze cancelled. The £600 million alcohol duty freeze that the Truss administration had planned on introducing on 1 February 2023 has been cancelled.
• VAT-free shopping scheme cancelled. The shopping scheme, which was originally proposed to remove VAT for tourists on UK products, has been scrapped.

Employment allowance

The employment allowance will remain at its current level of £5,000, having increased to that amount in April 2022.

This offers eligible employers relief on their class 1 NICs.

Business rates

The Chancellor confirmed that a business rates revaluation will still take place in April 2023, but also announced a set of changes, including:

• Multipliers will be frozen in 2023/24 at 49.9p and 51.2p (instead of rising to 52.9p and 54.2p).
• Relief for retail, hospitality and leisure will increase from 50% to 75%, equating to £110,000 per business in 2023/24.
• A transitional relief scheme will be put in place, placing ‘upward caps’ on bill increases caused by changes in rateable values at the 2023 revaluation. The caps will apply at different rates depending on business size.
• A new supporting small business scheme (SSBS) will take effect from 1 April 2023, capping bill increases at £600 per year for small businesses that are losing eligibility or seeing reductions in small business rate relief or rural rate relief.
• Improvement relief, which was announced at Autumn Budget 2021, will now be introduced from April 2024 until 2028.

Windfall tax

In response to recent increases to energy prices, Hunt announced that the current energy profits levy will be extended until March 2028, as well as increasing its rate from 25% to 35% from 1 January 2023.

A new, temporary levy will also be introduced for electricity generators. This will apply at 45% on excess returns, also from 1 January 2023 to 31 March 2028.

Annual investment allowance

One thing not mentioned directly in the Chancellor’s speech, but included in the accompanying documents, is the decision to permanently set the annual investment allowance (AIA) at £1m for businesses.

In September, Kwarteng announced that the AIA would remain at £1m rather than being decreased to £200,000 a year after 31 March 2023.

Now, Hunt has reinforced this change and will continue to keep the allowance at £1m from April next year.

R&D relief

Changes to the rates of the two research & development (R&D) relief schemes were announced.

The additional deduction for SME R&D relief will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. Meanwhile, the research and development expenditure credit (RDEC) rate will increase from 13% to 20%.

Hunt positioned the change as a “rebalancing” of the two reliefs, in response to reports of fraudulent claims. Broadly speaking, it means larger companies have more opportunity to benefit from the relief than smaller companies.

National living wage increase

From 1 April 2023, the national living wage will increase by 9.7%, to £10.42 an hour. This rate applies to people aged 23 and over and is said to equal an extra £150 per month.

Online sales tax

Following consultation, the Government has decided not to introduce a proposed online sales tax.

This tax would have aimed to rebalance the way online retail is taxed compared to in-store, but the Government said there were concerns it would be too complex and distort behaviour.

VAT threshold

The VAT registration and deregistration thresholds will remain at their current levels of £85,000 and £83,000 respectively until 1 April 2026.

These had previously been fixed at their current levels until 1 April 2024, but the statement confirmed they won’t change for a further two years.

Energy bills support

The current energy bill support scheme – the energy price guarantee – only runs until April 2023, with a price guarantee levied to help British taxpayers with their rising bills.

Originally announced by Kwarteng earlier in the year, Hunt made a change to this measure in his initial budget speech, reducing the time scale for support from two years down to only six months, lasting until April next year.

In the Autumn Statement, Hunt confirmed the change to the guarantee, continuing Government support, but increasing the threshold: with the average household now paying £3,000 a year, up £500 from the previous limit.

Experts predicted that, without Government support, energy bills could reach up to £3,700, but – regardless of this comparison – households that are already struggling with the current costs will see their bills increase by a further £500.

In response to these changes, Mike Foster, CEO of the Energy and Utilities Alliance, said: “News of the energy price cap protection coming to an end in April will surprise and worry millions of hard-pressed families. Together with the announcement that promised tax cuts have also been withdrawn will heap huge financial pressure onto those already struggling to pay their bills.”

Hunt also announced the following energy initiatives:

• Households on means-tested benefits will get £900 support payments next year
• £300 payments will be made to pensioner households, and £150 for individuals on disability benefit.

The one-off payment of £400 for winter energy bills has been in effect for the last month, so this saw no change.

The energy bill relief scheme, which is aimed at supporting businesses (which aren’t covered by the energy price cap) also remained in place – as did the energy markets financing scheme.

Reducing your tax bill when selling property.

A combination of financial challenges, eviction bans and a perceived lack of support meant the rental market was hit hard by the COVID-19 pandemic. Now, landlords and tenants are feeling the effects of rising costs.

Landlords are also concerned about rental reform, high taxation and higher energy efficiency standards, according to the UK Landlord Report by Simply Business.

They found that almost half of landlords had sold a property in the last year or are planning to do so, which “comes as little surprise when you consider the pace of market change, as well as tax disincentives such as Section 24 and the stamp duty surcharge”.

That’s not even taking into account the aftermath of the mini-budget announced by former Chancellor Kwasi Kwarteng on 23 September 2022, which piled even more risks onto landlords after the Bank of England signalled it could raise interest rates to 6%. As a result, some buy-to-let landlords may see their profitability decline when they go to refinance their loans.

Data issued by Hamptons suggests many will face losses if interest rates shoot up. It said the average higher-rate tax-paying landlord could expect their annual net profit to plummet from £3,198 to £884 – a 72% decline.

If the most recent 0.5 percentage point rate to 2.25% is passed on to mortgage costs, that could slash average profits to just £212 a year. And if the base rate were only to nudge up to 2.5%, that same landlord could expect to make a loss.

That leaves some investment property owners, in effect, faced with two options: raise rents in the hope a tenant will pay it to keep the landlord in profit territory or sell up. Meanwhile, some analysts predict house prices could fall by up to 20%, which puts more pressure on sellers.

But selling a residential property comes with its fair share of tax obligations, namely capital gains tax, which could end up costing you a fair amount of money. There are, however, ways to mitigate your tax bill.

You should only sell a buy-to-let residential property after talking through your specific situation with a financial adviser.

Capital gains tax on residential property

Capital gains tax is a tax on the profit you make when you sell (or ‘dispose of’) certain assets and property that has increased in value from when you first purchased it.

It is the gain you make that is taxed rather than the total amount of money you receive. For instance, a painting bought for £5,000 and sold later for £25,000 would have made a £20,000 gain.

Therefore, landlords who invest in property to take advantage of house price growth will almost certainly have paid capital gains tax in the past or are likely to do so in the future.

It is paid on:

• most personal possessions worth £6,000 or more, apart from your car
• property that is not your main home
• your main home if you’ve let it out, used part of it exclusively for business, or it is above 5,000 square metres in total
• any shares that are not in an ISA or PEP
• business assets.

You pay a different rate of tax on gains from residential property than you do on most other assets.

If you’re a higher or additional rate taxpayer, you’ll pay 28% on your gains from residential property and 20% on your gains from other chargeable assets.

If you’re a basic-rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and, again, whether your gain is from residential property or other assets:

1. Work out how much taxable income you have – your income minus your personal allowance and any other income tax reliefs you’re entitled to.
2. Work out your total taxable gains less taxable losses in the year.
3. Deduct your annual exempt amount from your net gains.
4. Add this amount to your taxable income.
5. If this amount is within the basic income tax band, you’ll pay 18% on your gains from residential property (10% for most other assets). You’ll pay 28% on gains from residential property (or 20% on most other assets) on any remaining amount above the basic tax rate band.

If you have gains from both residential property and other assets, you can use your annual exempt amount against the gains that would be charged at the highest rates first.

The annual exempt amount for capital gains is £12,300 for the 2022/23 tax year, and you are entitled to an annual exempt amount each year, so planning your asset or property disposals over the long term is important to save money on tax.

You must report and pay any capital gains tax on most sales of UK residential property within 60 days.

Property developers and businesses

If you own a business that buys and sells property (you’re a property developer, for instance), you do not pay capital gains tax when you sell a property.

Instead, you’ll pay income tax if you’re a sole trader or partner or corporation tax if you’re a limited company.

Non-resident CGT on UK property

Non-UK residents and landlords are liable to pay capital gains tax with a non-resident capital gains tax return if they sold or disposed of UK property before 5 April 2020.

From 6 April 2020, non-resident capital gains tax needs to be reported and paid using the capital gains tax on UK property service if you sold or disposed of:

• residential UK property or land
• non-residential UK property or land
• mixed-used UK property or land (property that has both residential and non-residential elements)
• rights to assets that derive at least 75% of their value from UK land (indirect disposals).

CGT deductions for landlords

Luckily for landlords, there are ways to reduce a capital gains tax bill.

First, the amount of capital gains tax payable will reduce if, at any time during the ownership of the property, the landlord lived there themselves.

If you lived in a property and then moved out to let the property out, you can claim private residence relief for the time you lived there, plus the last nine months you owned the property.

If you lived in your home at the same as your tenants, you might qualify for letting relief on gains you make when you sell the property.

You can get the lowest of the following:

• the same amount you got in private residence relief
• £40,000
• the same amount as the chargeable gain you made while letting out part of your home.

Letting relief does not cover any proportion of the chargeable gain you make while your home is empty.

If you purchased a property with multiple people, you won’t pay the same amount of tax as you would have if you purchased it alone, as the annual exempt amount of all the buyers is applied to the gain..

Landlords can also save money by claiming improvements to their properties as a tax-deductible capital expense. Improvements can be anything from installing cavity wall insulation to building an extension.

In most cases, landlords will have already deducted many of the expenses maintaining their property when completing their annual tax return. If not, there may be allowable expenses against capital gains tax when the property is sold. This also applies to fees associated with buying and selling a property, such as those related to surveyor inspections, solicitors, buy-to-let mortgage brokers, stamp duty and estate agents.

Talk to us about tax on your property.

The Government has u-turned on IR35 reforms.

Late September into mid-October has been a turbulent time for the Government and a confusing time (at best) for taxpayers, after former chancellor Kwasi Kwarteng’s fiscal statement.

On 17 October, the new chancellor, Jeremy Hunt, reversed around two thirds of the tax cuts in the fiscal statement, including complicated changes to the controversial off-payroll working rules known as IR35.

Background of IR35

IR35 rules first came into law via the Finance Act 2000, the idea being to clamp down on the growing use of one-man-band limited companies to provide professional services to clients, where the individual was still working in a manner akin to a traditional ‘employee’.

In other words, the rules were designed to clamp down on self-employed workers who enjoyed the tax benefits afforded by a corporate structure, while benefiting from what was essentially ‘employment’.

If a contract was ‘inside’ IR35, it meant the contractor was a ‘disguised employee’ and would have to pay the same income tax and NICs as an employee, even if they worked through a limited company. If the contract was ‘outside’ IR35 and the contractor worked through a company, corporation tax was payable instead.

Directors of limited companies benefited if their contracts were outside IR35, because they could pay themselves low salaries and top up their payment with dividends, which were (and still are) generally taxed at lower rates than employment income liable for income tax and National Insurance. They therefore had an incentive to find their contracts to be outside of IR35 legislation.

Note how contracts, not the worker, were and are analysed on a case-by-case basis as to whether IR35 applied or not.

IR35 was controversial from the start, with what is now the Association of Independent Professionals and the Self-Employed (IPSE) seeking permission for a judicial review of IR35 in 2001, which they lost.

After efforts to help taxpayers understand the rules more easily during the coalition-Government era, the IR35 tax rules were reformed in the 2016 Budget, when businesses were given more responsibility for determining the tax status of their contractors.

The aim of the policy was to ensure contractors who are not genuinely self-employed pay the same income tax and NICs as employees, and that businesses could not avoid taxes by hiring self-employed workers in the place of regular employees.

It came into force for the public sector in 2017, and the private sector in 2021 after a one-year postponement due to Covid-19.

However, it only applies to medium and large companies, meaning contractors working for small end-clients have to work out their IR35 status themselves.

A small end-client will fall under two or more of these requirements:

• turnover of no more than £10.2 million
• balance sheet total of no more than £5.1 million
• no more than 50 employees

In a surprise move as part of the September 2022 mini-budget, then-Chancellor Kwasi Kwarteng announced a repeal to both the 2017 and 2021 IR35 reforms from 6 April 2023.

This repeal was then cancelled, however, by Jeremy Hunt after he succeeded Kwarteng as Chancellor.

At the time of writing, no further changes are due to happen to IR35, and the end clients of contractors will continue to be responsible for applying the rules.

Good or bad?

Many businesses and contractors alike will be unhappy to hear the IR35 reforms have been repealed.

Andy Chamberlain, director of policy at IPSE, said:

“[The] announcement will be a huge blow to thousands of self-employed contractors and the businesses they work with.

“The reforms to IR35 have created a nightmare for businesses seeking to engage talent on a flexible basis, while simultaneously forcing individuals out of business altogether.”

Research conducted by YouGov earlier this year on behalf of IPSE found the reforms damaged the ability of businesses to grow and hurt freelancers.

The research found that despite nearly half of UK businesses (49%) stating they could not achieve “the same outcomes without the use of contractors”, 28% had decreased their number of contracts since the reforms.

The survey of 501 businesses also found that IR35 reforms had “financial implications” for 42% of companies and added a significant administrative burden for 47% of businesses.

Meanwhile, the reforms hurt many contractors and freelancers, 35% of whom had closed their business since the changes.

Many contractors’ clients may have unfairly and incorrectly determined they were inside IR35 rules, as 20% of businesses made a blanket statement and decided all their contractors were within IR35.

Chamberlain said:

“We know that the Government is well aware of the problems caused by this damaging legislation – the previous Chancellor said so at the mini-budget and the Prime Minister made it clear during her leadership campaign.

However, some people and organisations, such as the Resolution Foundation, call pre-reform IR35 rules “regressive”, as analysis shows higher-paying workers were caught within IR35 from 2021 onwards.

“Higher earners moving into self-employment could increase the scale of the resulting tax avoidance,” the Resolution Foundation said in this analysis.

It added that IR35 reforms have increased tax receipts:

“Repealing this provision [would have brought] about a fall in tax revenue of £1.1 billion next fiscal year, and £2.0 billion a year by 2026-27, presumably because of abuse as contractors choose to self-declare their self-employed status (which comes with a significant tax advantage over employees).”

What you need to do

So, with the IR35 reforms here to stay, businesses remain the ones liable to identify the true tax status of their contracted workers. But how do you know whether they are inside IR35 or not?

IR35 is underpinned by employment legislation and case law, so tests of employment have evolved over the decades.

A tool called ‘check employment status for tax’ (CEST) provides HMRC’s view of a worker’s employment status based on the information provided.

Hirers, agencies and contractors themselves can all use the tool. It was published in March 2017 in conjunction with the reforms.

IR35 checklist

The following is a non-exhaustive IR35 compliance checklist of some of the factors that can indicate whether a contractor is inside or outside IR35.

A contractor might be inside IR35 if they:

• carry out all the work they are contracted to do personally
• work for their own limited company, but receive employment benefits, such as paid leave or sick pay
• are being paid on a time basis
• work for one client long-term
• are supplied with the equipment by a client and work at their premises.

They might be outside IR35 if:

• they have the right to delegate or substitute work contracted to another person and use that right in practice
• they are paid on a project basis rate or at a fixed rate
• they can decide how and when they work, and can send a substitute to do the job
• pay for all rejected work is corrected at their own cost
• they work with more than one client at one time or on short successive projects with a variety of clients.

Get in touch to talk about IR35.

A typical five-year fixed rate mortgage has hit 6.02%, the highest figure since the 2010 financial crisis.

Mortgage rates have been rising throughout 2022, but there was a significant increase after the mini-budget announcement on 23 September.

The average two-year mortgage also hit its highest rate since the 2008 financial crisis at 6.07%.

Following the announcement, a large number of lenders removed their mortgages from the market. Between 28 September and 5 October, the number of products on the market dropped from 3,961 to 2,371.

Prime Minister Liz Truss addressed homeowners’ concerns in her speech at the Conservative Party conference, citing the stamp duty cut as one measure the Government is taking to offset the cost of living crisis.

Those most affected by the increased rates include first-time buyers and homeowners looking to remortgage.

An average of 100,000 people a month will be coming to the end of their current mortgage from October, and will also see a sharp rise in their monthly repayments.

Rachel Springall, press officer at Moneyfacts, said:

“The mortgage market has seen relentless rate rises this year, and borrowers coming off a fixed mortgage will find the cost to secure a new deal is much higher than they were perhaps anticipating.

A new survey from the British Chambers of Commerce (BCC) reveals that business confidence declined significantly in Q3 compared to Q2 of this year.

Of the 5,200 firms that took part in the BCC’s quarterly economic survey, nearly four in ten (39%) businesses believe they will see a fall in profits over the next 12 months.

Inflationary pressures are affecting business confidence, with soaring interest rates also cited as a growing concern for businesses.

Only 44% of businesses expect their turnover to increase over the next year, down from 54% in the last quarter.

Fewer businesses reported increased sales compared to Q2, with only 33% of firms reporting an increase in domestic sales in the last three months.

The retail and wholesale sector took a particularly large hit to sales, with more firms reporting a decrease (39%) than an increase (25%).

More businesses are experiencing cashflow problems, with 32% of firms reporting reduced cashflow compared to 23% reporting an increase.

David Bharier, head of research at the BCC, said:

“This quarter’s results point to a significant decline in business confidence, with a clear shift downwards in many of the key indicators we track.

“Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.”

Responding to the findings of the economic survey, director general of the BCC, Shevaun Haviland, said:

“Our findings paint a worrying picture of the state of affairs at many UK firms. Almost every key business indicator is trending downwards – sounding alarm bells across all sectors and regions.

“Sales and cashflow are down, firms are operating below capacity, and the number of businesses expecting to see their profits increase is falling.

The BCC continued to urge the Government to bring forward any fiscal plans to help businesses and markets to understand how they may be able to find stability over the coming months.

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The inflation rate hit 10.1% in the 12 months to September, according to new data from the Office for National Statistics (ONS).

This is up from 9.9% in August and sees a return to the recent 40-year high witnessed in July.

One of the biggest contributors to the rise in the inflation rate in September was a 9.3% increase in housing and household services costs. This was mostly fueled by housing costs, private rents, and soaring energy prices.

A significant increase in food and drink costs heavily affected inflation, with prices rising by 14.6% in the 12 months to September, compared to only 13.1% in August.

The inflation rate for this category has continued to rise for the last 14 consecutive months.

The rise in inflation was partially offset by a continued decrease in petrol and diesel fuel prices. Fuel prices increased by 26.5% in the year to September, compared to 32.1% in August.

David Bharier, head of research at the British Chambers of Commerce, said:

“Businesses will need to see a clear long-term economic plan to provide a stable environment to invest, alongside specific measures that relieve unprecedented inflationary pressures.”

Talk to us about your finances.

Prime Minister Rishi Sunak announced that the statement on the Government’s fiscal plan, originally planned for 31 October, will be delayed until 17 November.

The PM said the delay is in an effort to ensure the tax and spending plans “stand the test of time”.

The statement will also be released alongside a full economic forecast from the Office for Budget Responsibility.

Speaking to his cabinet on 26 October, the Prime Minister said:

“It is important to reach the right decisions and there is time for those decisions to be confirmed with Cabinet.

“The Autumn Statement will set out how we will put public finances on a sustainable footing and get debt falling in the medium term and will be accompanied by a full forecast from the Office for Budget Responsibility.”

The decision to delay the statement comes just a couple of weeks after Chancellor of the Exchequer, Jeremy Hunt, announced the reversal of his predecessor’s fiscal plan.

The new Chancellor quickly scrapped the majority of Kwasi Kwarteng’s previous tax plans within days of his new role, in a statement delivered on 17 October 2022.

Kwarteng’s fiscal statement or ‘mini-budget’ caused much controversy among politicians and the public after he announced it on 23 September.

As a result, the majority of mini-budget decisions are being reversed in an effort to protect the economy, which Hunt says should raise around £32bn a year.

The basic rate of income tax will remain at 20% instead of decreasing to 19% and will not be cut until “economic circumstances allow.”

Changes to IR35 and dividend tax rates are also being scrapped, along with the VAT-free shopping scheme.

Alcohol duty rates will be frozen for one year from February 2023, while the proposed measures on stamp duty and National Insurance will stay in place.

The energy bills relief scheme will remain to help households and businesses with soaring energy costs. However, the Government will launch a Treasury-led review of the scheme after April 2023.

Talk to us about your business costs.