Yesterday the Chancellor delivered the 2018 Autumn Budget. The extension of the public sector IR35 reforms to the private sector was the most widely anticipated announcement, and it’s welcome that the Chancellor has listened to representations regarding the timing of the changes.
The proposed reforms will put an additional burden on businesses, so an implementation date of April 2020 provides more time to prepare. The Chancellor has listened to representations from smaller businesses and will only extend the rules to large and medium-sized enterprises.
A further consultation on the operation of the new rules will be published in the coming months, with draft legislation expected to be published in the Summer of 2019. This provides an opportunity for further lobbying to help shape the details of the rules.
As the leading experts in this area, we are well placed to support the private sector and will continue to work closely with recruitment businesses, end hirers and our contractor clients to help guide and educate them through any changes with minimal disruptions.
A key point to note is that the status tests for determining IR35 status will not change, simply who is responsible for making the status assessment and for collecting the taxes where applicable.
If the rules mirror the current off-payroll rules in the public sector (which is still subject to further consultation) then this is likely to mean that for larger and medium-sized businesses engaging contractors the basic process will be as follows:
1. The end hirer will need to exercise reasonable care to determine whether the engagement is inside or outside IR35
2. If there is another party in the chain who pays the worker’s limited company, such as a recruitment firm, the end hirer will advise them of their decision before the start of the assignment.
3. If the engagement is outside IR35, the worker can decide how to extract funds from their limited company and continue to operate as normal.
4. If the engagement is inside IR35, the party paying the worker’s limited company (known as the ‘fee payer’), has to deduct PAYE and employees NI, plus pay employers’ NI (and the apprenticeship levy if applicable) in addition, before making the net payment to the worker’s limited company.
5. The worker then receives credits against the tax that has already been deducted and they can draw the net funds out of their limited company as they see fit.
If these same rules extend to the private sector, in principle, someone genuinely operating outside IR35 at the moment should be able to continue doing so.
This means IR35 best practice remains and our accountants are well placed to support and advise you.
We will keep you updated with all the latest developments, however for the next 17 months it is business as usual.
We have prepared an overview of all the relevant budget announcements for you.
Personal taxation and wages
• The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April 2019 – a year earlier than planned
• The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April 2019
• The additional tax rate threshold will remain at £150,000
• National Living Wage increasing from £7.83 to £8.21 an hour, from April 2019.
• Tax rates and thresholds are different in Scotland. The Scottish government’s Finance Secretary Derek Mackay will set out his income plan for Scottish tax payers on 12 December.
• Capital gains tax annual exemption will increase to £12,000 (from £11,700) in April 2019.
Businesses and other taxes
• Changes to the off-payroll rules will extend from the public sector to medium and large private sector companies from April 2020
• Corporation Tax rate will remain at previous pledge of 19% and is expected to reduce further to 17% in April 2020
• The Employment Allowance, which provides many employers with relief of up to £3,000 per tax year from their employers’ National Insurance contributions (NICs) bill, will be restricted to only those employers who had a NICs bill below £100,000 in the previous tax year.
• VAT registration threshold will remain at £85,000 for a further 2 years until April 2022. VAT deregistration threshold will remain at £83,000.
• The period a company must have been previously trading to qualify for Entrepreneur’s Relief a company will increase from 12 months to 2 years in April 2019.
• Annual Investment Allowance (AIA) to be increased from £200,000 to £1m for two years
• Capital Allowances – writing down allowance for those purchasing capital items in the special rate pool will reduce from 8% to 6% in April 2019.
• Contribution of small companies to Apprenticeship Levy to be reduced from 10% to 5%
• Business rates bill for firms with a rateable value of £51,000 or less to be cut by third over two years
• Benefit in Kind – employers reimbursing employees for subsistence using benchmark scale rates will no longer be required to check receipts from April 2019. The existing concessionary accommodation and subsistence overseas scale rates will be placed on a statutory basis providing greater certainty for businesses.
Pensions and Savings
• The band of savings income at the 0% starting rate will be kept at its current level of £5,000.
• The annual subscription limit for Junior ISAS and Child Trust Funds will be uplifted to £4,368 in April 2019.
• The overall annual ISA subscription limit will remain unchanged for 2019-20 at £20,000. State of the economy and public finances
• Era of austerity is “finally coming to an end”, the chancellor says
• 2018 growth forecast downgraded to 1.3% from 1.5% in March, due to impact of bad Spring weather • But forecast for 2019 raised from 1.3% to 1.6% and annual forecasts raised to 1.4%, 1.4%, 1.5% and 1.6% in 2020, 2021, 2022 and 2023 respectively.
• 3.3 million more people in work since 2010 and 800,000 more jobs forecast by 2022.
• Wages growth at its highest in nearly a decade
• Public borrowing in 2018 to be £11.6bn lower than forecast in March, representing 1.2% of gross domestic product, (GDP) the total value of goods produced and services provided
• Borrowing as a share of GDP to rise to 1.4% next year
• Borrowing to total £31.8bn, £26.7bn. £23.8bn, £20.8bn and £19.8bn in next five years
• Debt as share of GDP peaked at 85.2% in 2016-17, falling to 83.7% this year and to 74.1% by 2023-24
• 1.2% annual average growth in departmental spending promised
• Extra £500m for preparations for leaving the EU
• Spring Statement next March could be upgraded to full Budget if needed Other notable announcements
• All first-time buyers purchasing shared equity homes of up to £500,000 to be exempt from stamp duty
• New 2% digital services tax on UK revenues of big technology companies, from April 2020. Profitable companies with global sales of more than £500m will be liable
For full details of the 2018 Budget, read our guide here.
For any questions on how the announcements in the budget may affect you and your company, speak to your dedicated accountant who will be happy to help.