Contractors Saved by Chancellor’s Sleight of Hand

Contractors Saved from IR35 test
Contractors Saved from IR35 test and tax hike

Contractors Saved


It was a sleight of hand that saw UK contractors saved from the worst ravages by the Chancellor.

Indeed, it wasn’t even the Chancellor. It was someone, or some people, at the Treasury.

Contractors Saved by Chancellor Osborne
Contractors Saved by Chancellor Osborne

The Chancellor has let it be known, either personally, or by Treasury leaks that he was:-

  1. Intending to take away from both umbrella company contractors, and personal service company contractors, the right to offset travel and subsistence expenses against tax
  2. He was going to force all contractors onto their client’s payroll after they had been there just a month
  3. He was going to create a new online IR35 test that clients would force contractors to sit. If they failed they had to go on the client’s payroll. The details of those who failed would be kept by HMRC for further use

Contractors Saved from the Chancellor

In the end, neither points 2 and 3 got implemented.

Indeed, they weren’t mentioned, at all, in either the Autumn Statement or the 2016 Finance Bill.

They may happen in future but it will be at least April 2017 before they get implemented – if they ever do.

Umbrella Company Contractors

Even with point 1, the Chancellor changed his mind about including personal service company contractors in it.

Umbrella Company Contractor Options in April
Umbrella Company Contractor Options after April

Umbrella Company contractors will lose their ability to claim travel and subsistence expenses against tax if they are Supervised, Controlled and Directed.

If they weren’t, one would assume that they would probably be outside IR35 and wouldn’t be in an umbrella company, paying an average of £10,000 a year more in tax, even before this change, than if they operated through a personal service company.

Personal Service Company Contractors

Contractors operating through a personal service company will still be able to claim travel and subsistence expenses against tax – provided they are outside IR35.

Contractors Saved in Autumn Statement from tax hike
Contractors Saved in Autumn Statement by Chancellor Osborne

As they shouldn’t really be operating through a personal service company if they are caught by IR35, one would assume that all personal service companies contractors will escape this threat – unless, of course, they are caught by HMRC in an IR35 investigation.

That would mean the penalties would be even higher if they did get caught.

Being Investigated for IR35

However, as we pointed out in an article recently, you would be more like to win the Lottery, or be struck by lightning, than be investigated for IR35 by HMRC.

Of course, some lucky people do win the Lottery and some more souls do get struck by lightning – and some poor souls (or tax cheats as HMRC would have it) do get investigated for IR35.

I wonder what the chances are of being investigated for IR35, winning the Lottery and then being struck by lightning – but I diverge.

Chancellor Osborne’s Thinking

So, to get back to the main thrust of the article.

Why did contractors get saved from the worst ravages of the Chancellor?

Did he simply change his mind after lobbying from contractors group IPSE and others?

Did he see the ‘error of his ways’ and let personal service company contractors off the hook.

Personal Service Companies
Personal Service Companies for UK contractors

It wasn’t just contractors who got off the tax hook.

The Chancellor also changed his mind on tax credits too.

So, what was the reason for it?

Treasury Found Extra Income Tax

Well, the Treasury suddenly found an extra £27 billion in taxes.

This mean that the Chancellor would have to make up to £27 billion fewer cuts.

This was a very odd sum to find suddenly. It was a hell of a lot of money, too, to have misplaced, or suddenly found.

How did they suddenly realise that they had £27 billion more in tax receipts than they thought they had?

The answer is that they didn’t.

Those were not tax receipts that had come in.

Those are tax receipts that they predict will come in. It is money that they don’t have yet.

Tax Calculations

The Treasury did their calculations in a new way and predicted that HMRC would get an extra £27 billion this year in extra tax receipts.

So, it is just a prediction.

However, the cuts that the Chancellor is now not going to make were hard cuts.

Chancellor George Osborne
Chancellor George Osborne

Surely, one would think, they would wait to see what tax receipts came in each year before spending them, or not cutting where they were going to cut.

Making a preditions is just making a prediction.

We all know how much the predictions of economists and the Treasury are out every year.

Contractors Not Complaining

However, if it saved the butts (and pockets) of UK contractors then they are not going to complain about it.

Of course, a Keynsioan would say that it was a self-fulfilling prophesy.

Contractors Day of Destiny over Finance Bill 2015
Contractors Day of Destiny – 2015 Finance bill

If the Chancellor doesn’t make £27 billion of cuts that he was going to, that would stimulate the economy by £27 billion and bring in extra tax receipts from business who are doing better and from people who are now working and not claiming benefits.

Mybe there’s a Keynesian hiding in the Treasury somewhere, who managed to make the figures add up, via a computer calculation, to an extra £27 billion in tax thos year.

Whatever, as I said, UK contractors saved from the Chancellor’s wrath are not going to complain.



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