In the aftermath of the Autumn Budget one thing still shines bright - the extension of the ‘off-payroll’ rules,
The strong rumours before the Autumn Budget that the Chancellor, Phillip Hammond, would roll out the ‘off-payroll’ rules into the private sector were not abated by the announcement contained in 3.7 of the Budget document which states:
“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.”
Like many HMRC consultations that have taken place down the years it has all the hallmarks of a window dressing exercise to give the appearance that the government are listening to all stakeholders, when in reality they have already made up their mind. After all, if HMRC have convinced the government that the IR35 reforms are having the desired effect and all is well, then it becomes a natural progression for the private sector to be treated in exactly the same way.
Will this, however, be a step too far and cause many talented and much sought after freelancers to abandon UK plc altogether? For example, The Times newspaper printed a case study of 54 year old Andrew Neil, an IT contractor from north Wales, who has a wife and three children. He currently contracts for a large investment bank in the city, renting a room in the suburbs during the week and returning home at weekends. He claims that extending the ‘off-payroll’ rules to the private sector could cost him thousands of pounds per year, and that he would probably have to emigrate as a consequence. Mr Neil said, “When contractors are forced out, their place will be taken by large consultancies, paying little tax.”
Employment status discussion paper
Another announcement directly concerning employment status is that a discussion paper is to be published in part 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. Recognising that this is an important and complex issue, the government will work with stakeholders to ensure that any potential changes are considered carefully.
Taxation only recognises two types of worker, either employed or self-employed, whereas employment law recognises a third type, “limb” worker – a category of self-employed person who carries their work out as part of someone else’s business and as such is entitled to certain employment rights. Any move to bring clarity to this situation, when determining status, is therefore welcomed but there may be many concerned employers worried about greater burdens being foisted upon them as a result.
VAT registration threshold
Finally, and hot off the back of the Office of Tax Simplification’s recent suggestions regarding simplifying VAT, the Chancellor thankfully resisted the temptation to lower the registration threshold at which point businesses must register for and start charging VAT on their sales. Such a move would have caused serious economic damage. Instead, the current threshold of £85,000 will be frozen for two years from April 2018 and the government will consult on the design of the threshold.
As to where the next budget takes us only time will tell, but for now it may be best to enjoy the lack of change.. albeit for only a few months.