In the first of his Autumn Budgets, Chancellor Philip Hammond made a positive statement about the state of the UK economy. He talked about high employment levels, decreasing debt and opportunities for UK business, particularly in the technology sector. He said that to support UK business the Conservatives were committed to keeping taxes low and investing in the regions and in infrastructure and building homes. This should be good news for those in the construction sector.
In terms of matters specifically affecting contractors and freelancers he announced that he was considering extending the off-payroll rules to the Private Sector. In other words making clients and agencies responsible for deciding whether a contractor is caught by IR35 and making them liable for the tax if they get wrong.
Off-payroll working in the private sector - The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
There has recently been a lot of press speculation that this would happen in April 18 but based on the above I would say this is unlikely. Consultations usually run for 12 weeks and thereafter time is required to draft and amend new legislation. This would suggest that, if it happens at all, April 19 is the most likely date. That said it is entirely possible that the legislation is already drafted (a template is available from the public sector changes) and that the Government has already made its mind up. But that would mean ignoring representations from the business community, the accountancy profession, CBI, and trade bodies such as APSCO and PRISM that any changes should be well considered.
When the rules were introduced in the public sector the feedback was universally negative (save from HMRC of course) since:
- The rules are difficult to understand for workers and public sector
- Public sector bodies didn't want to take a risk on getting assessments wrong so said all workers were caught - this led to a reduction in take home pay
- Agencies costs were increased and clients were not prepared to pay more
- High street accountants struggled with understanding the deductions to be made since they are not logical.
- Payroll and accountancy software did not work with the new rules
The Chancellor also announced that the Government will look at modern employment practices generally. This is a good thing since working practices have changed and tax and employment laws are catching up. Hopefully this means the Government won't introduce tax changes without considering all the consequences and in particular the feedback from the public sector.
Employment status discussion paper - The government will publish a discussion paper as part of the response to Matthew Taylor's review of employment practices in the modern economy, exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer. The government recognises that this is an important and complex issue, and so will work with stakeholders to ensure that any potential changes are considered carefully.
The Chancellor also restated the Government's commitment to closing down tax avoidance schemes (some of which are used by contractors). This should raise £4.8 billion for the Treasury. HMRC has already highlighted a number of schemes in the spotlight (offshore loan schemes, jobs board schemes) which we have previously discussed in our newsletters.
Other measures that may affect contractors include:
- The Income Tax Personal Allowance increases to £11,850 for the next tax year beginning on 6 April 2018. At the same time the basic rate tax limit increases to £34,500 (contractors living in Scotland will have to wait for the Scottish Parliament to set this threshold for them). This is designed to help lower paid workers;
- Vehicle Excise duty on diesel cars not meeting current emission targets will rise by one band. However fuel duty rates will remain frozen;
- In an encouragement to users of environmentally-friendly electric and hybrid cars there will be no taxable benefits on employees using a workplace charging point;
- As for the 'sin' taxes, there is an increase of inflation +2% on tobacco products but no change in the duty on wines, beers and spirits; the Chancellor made it clear he wanted to support small pubs!
- Despite much speculation in the financial press the Chancellor decided not to change the VAT registration threshold which will remain at £85,000;
- Housing issues turned out to be the highlight of the speech. As well as outlining various incentives, investments and interventions to energise house building, changes to Stamp Duty made the headlines. First time buyers will be exempt from paying Stamp Duty on homes costing less than £300,000. For London first time buyers the first £300,000 of the cost of a £500,000 purchase will be exempt with the remaining £200,000 charged at 5%.
In common with every Budget the Chancellor announced some consultations to take place during 2018 on a wide range of financial and taxation issues for the future. PayStream will keep you informed as and when more information about them is published.