The Autumn Statement has without doubt become a mini-Budget in recent times, and given the changes that have come over the horizon for freelancers and contractors in the past year, this Wednesday’s Autumn Statement could bring extra fireworks. So what might we have in store?
The so-called “dividend tax” - upcoming changes to the rules for how dividend income is taxed - were announced at the Summer Budget in July. HMRC has since brought out explicit guidance for how this will work.
I wouldn’t expect to see any major changes to dividend tax in the Autumn Statement, as it’s a fairly new initiative and a step towards making the route of paying a low salary and a high dividend less attractive. While the introduction of dividend tax came as a blow to some, the majority of the contractor world’s fury of late has been reserved for the consultation paper on changes to tax relief on travel and subsistence.
Travel and subsistence
Under the proposed changes to travel and subsistence, contractors who are subject to supervision, direction or control by a third party while they are working would not be able to claim tax relief on their travel and subsistence costs to that workplace.
HMRC is currently analysing the public response. The Chancellor may announce a softening of these rules in the Autumn Statement, accompanied by the message that “we have listened”. On the other hand, I would not be surprised to see the changes go through as proposed on the basis that the government wishes to create a “level playing field” between employees and contractors.
This hoary chestnut could well reappear in the Autumn Statement. In the past, HMRC has acknowledged that IR35 needs reform. Many bodies are calling for it to be abolished altogether, but I would not expect to see this happen; how to tax quasi-employment is too much of a political hot potato and too much time and money has already been invested in IR35, for example the development of the ill-fated business entity tests.
If tax relief on travel and subsistence does have to be restricted (and I am yet to be convinced that this is the right course of action) it would be a great step forward to combine IR35 reform with the rules for restriction of travel and subsistence tax relief, rather than having two separate sets of definitions. This way, tax relief would not be available on journeys to workplaces where the contract is within IR35.
The release of so-called “trivial benefits” from reporting obligations has been much discussed but not yet implemented. I would very much like to see this step taken, since it is in the direction of simplification and reducing the burden on small businesses.
My hopes for the Autumn Statement
In my perfect world, the Chancellor would be announcing a number of changes in the Autumn Statement that would radically simplify the tax system. Ideally, these would include:
- the combination of income tax and National Insurance
- a threshold to exempt small businesses from having to charge local VAT on their digital sales to EU consumers
- simplification of VAT and removal of the confusing distinction between “zero-rated”, “exempt” and “outside the scope” sales
- simplification of the tax return and income tax calculations
Of course, we’ll all have to wait until Wednesday 25th November to find out what this year’s Autumn Statement contains. We'll be live tweeting the announcement as it happens - you can follow the action on Twitter. Hope to see you there!