2022: a round-up of key industry developments

Industry News, IR35

2022 has been a turbulent year, politically and economically, and at times it’s been difficult to keep on top of the latest developments.

Against this backdrop, government departments collectively received backdated tax bills in excess of £250m for historic IR35 non-compliance, while inflation has skyrocketed and recession has hit. And, of course, IR35 reform was briefly and unexpectedly repealed, and then quickly and disappointingly reinstated.

So before we start looking forward to 2023, we’ve looked back at the last year, reviewing the major developments and the impact they’ve had on an industry of independent workers across the UK.

 

Spring Statement

On the 23rd March, Rishi Sunak presented a Spring Statement as Chancellor of the Exchequer under the premiership of Boris Johnson.

In the shadow of the Russian invasion of Ukraine – which began on 24th February – the Chancellor announced a set of measures to bolster economic growth and put more money in taxpayers’ pockets. 

These included:

  • A £3000 increase to the NICs threshold, from £9,570 to £12,570, giving all self-employed workers a greater tax-free allowance
  • A promised cut to the basic rate of income tax, from 20% to 19%, by April 2024
  • An increase in Corporation Tax, from 19% to 25%, in April 2023

 

Ongoing political turbulence

However, only a few short months after the Spring Statement, Sunak resigned as Chancellor – alongside a host of other MPs who did the same – prompting Boris Johnson to step down as Prime Minister. 

This sparked a campaign to find the next Prime Minister, with a leadership contest running over the summer. 

During the campaign, several MPs were on the ballot, with the contest eventually whittled down to just two contenders: Liz Truss and Rishi Sunak.

Over the course of televised debates and public appearances, the two set out their vision for the economy and the country. Truss pledged to review IR35 reform, which was seen by many as an empty promise.

 

Truss makes her mark…

After a summer-long leadership contest, Liz Truss became the UK’s third female PM. 

As Truss grappled with soaring inflation, she oversaw an emergency mini-budget in late September with her new Chancellor, Kwasi Kwarteng.

During the budget, an unprecedented number of tax cuts were announced, including the cancellation of the planned increase to Corporation Tax and the reversal of a 1.25-percentage-point increase to NICs along with the abolition of the additional rate of income tax.

And having pledged to review IR35 reform, Truss went one better. IR35 reform was – unexpectedly, incredibly – to be repealed.

 

… and takes her leave.

IR35 was out. Until it was back in, which was almost immediately.

While the intention behind the mini-budget was to stimulate economic growth, it had the opposite effect, with financial markets spooked by apparently unfunded tax cuts. 

Economic backlash ensued, with the value of the pound falling against the dollar. Truss resigned, with Rishi Sunak installed as PM after another brief leadership contest.

In an immediate response to the economic conditions, Sunak’s newly-appointed Chancellor, Jeremy Hunt, announced the reversal of many of the measures put forward by Truss and Kwarteng – including the repeal of IR35 reform.

The new Chancellor also promised a full Autumn Statement, initially for 31st October, before pushing it back to November 17th.

 

Autumn Statement 

At the formal Autumn Statement, Hunt confirmed that the UK is in a recession. The measures he set out were intended to reduce its severity, making it shorter and shallower.

To help stabilise the economy and reduce a £55bn deficit in the public purse, Hunt announced a number of tax increases and freezes, including:

  • Cutting the earnings threshold for additional rate income tax from £150,000 to £125,140 (effective April 2023)
  • Reducing the tax-free allowance for capital gains, from £12,300 to £6000 in April 2023, and again to £3000 in April 2024.
  • Slashing the tax free dividend allowance, from £2000 to £1000 in April 2023, and from £1000 to £500 in April 2024.

You can read the full summary of the Autumn Statement here.

 

Looking forward to 2023

With economic uncertainty the key concern going into next year, if previous recessions are anything to go by, the demand for freelancers and contractors could well increase. The flexibility offered by contractors becomes increasingly valuable – key in helping businesses navigate challenging periods.

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