Plans to repeal contentious off-payroll working rules that impact numerous oil and gas workers have been scrapped.
As part of a host of U-turns on government proposals announced last month, new Chancellor Jeremy Hunt reversed moves to abolish IR35 reforms.
It is a decision that has been condemned by experts, who have accused Mr Hunt of being part of the anti-growth coalition.
There has even been suggestion the movecould lose the Conservatives the next General Election.
Confirming a reversal of almost all the tax cuts made by his predecessor Kwasi Kwarteng, Mr Hunt said: “The government today has decided to make further changes to the mini-budget and to reduce unhelpful speculation about what they are, we’ve decided to announce these ahead of the medium-term fiscal plan, which happens in two weeks.
Watch the Chancellor @Jeremy_Hunt’s statement outlining the measures being brought forward from the Medium-Term Fiscal Plan that will support fiscal sustainability.https://t.co/faGd6A9YVp pic.twitter.com/1MWp4Y2ewv
— HM Treasury (@hmtreasury) October 17, 2022
“Because these decisions are market sensitive, I’ve agreed with the speaker to give an early, brief, summary of the changes which are all designed to provide confidence and stability.
“Firstly, we will reverse almost all of the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation.
“So while we will continue with the abolition of the health and social care levy and stamp duty changes, we will no longer be proceeding with the cut to dividend tax rates, the reversal of off-payroll working reforms, introduced in 2017 and 2021, the new VAT free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”
‘Wrong decision at the wrong time’
Mr Hunt’s decision not to follow through with the move to scrap IR35 reforms will have incited a huge groan from oil and gas firms.
Research has previously shown the current intricacies of the rules are putting businesses off using contractors.
On the other side of the fence, they are causing freelancers to consider closing their businesses, retiring, or leaving the UK entirely.
Qdos chief executive Seb Maley said: “I’m lost for words. The chaos, uncertainty and disruption caused by the mini-Budget is unprecedented. While U-turning on some tax cuts made sense, 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.”
Short lived celebration
There was jubilation last month when the then-Chancellor, Kwasi Kwarteng announced the government would be repealing IR35 reforms, which came into force for the private sector last year.
‘Huge victory for contractors’ as Kwarteng pledges to repeal IR35 tax rules
The loathed rules put the onus on businesses to decide whether contractors are used more like regular staff, meaning they would have to pay a higher level of tax.
While the rules are designed to clamp down on people avoiding paying the correct level of tax, they have been repeatedly criticised for being overly complex.
Firms found to have got them wrong also face lofty fines, pushing many to implement blanket rules, or stop stop using freelancers alltogether.
Conservatives part of ‘anti-growth coalition’
Reacting to Mr Hunt’s statement, Dave Chaplin, CEO of tax compliance firm IR35 Shield, said: “The government’s initial commitment to repealing the Off-Payroll rules was a sensible initiative and would have been a significant step forward for the UK’s army of self-employed people who are critical to the Government’s pro-growth agenda.
“Repealing Off-payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, Off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.
“Whilst we agree that tax avoidance measures are sensible, the Off-payroll rules over-extended, causing genuinely self-employed contractors to lose their rights to being their own boss.
“The Conservatives U-turn on the repeal has thrown around half of the genuinely self-employed contractors under the bus, and likely kissed goodbye to their success at the next General Election.
“With the anti-growth effects of Off-payroll, it appears the pro-growth Conservatives have now joined the Anti-Growth Coalition – as the saying goes ‘we are all in this together’.”