Autumn Budget 2018 - IR35 reform extended to the private sector
The Autumn Budget statement was unveiled by the Chancellor of the Exchequer, Philip Hammond, earlier this afternoon.
The government, as expected, implemented changes to the way IR35 status is determined for workers in the private sector. See below for a summary of the announcements that may affect you as a contractor:
IR35 – Private Sector
As expected, the Chancellor announced that rules surrounding IR35 will be brought in line with public sector bodies. The changes will be introduced in April 2020.
The changes mainly involve shifting the responsibility of confirming the IR35 status from the worker to the agency or end client engaging the worker. If the worker is caught by IR35, the agency or end client will also be responsible for operating and calculating the tax and national insurance deductions as they would for employees.
With the changes coming in April 2020, we hope that this gives businesses and individuals time to prepare.
The changes will only apply to those end clients or agencies who are medium or large organisations and HMRC will provide guidance ahead of the implementation. Small organisations will be exempt, which minimises the administration cost.
In summary, in relation to the IR35 reform, Philip Hammond, said:
"The off payroll working rules - known as IR35 – are designed to ensure fairness, so that individuals working side by side in a similar role for the same employer pay the same employment taxes.
"Last year, we changed the way these rules are enforced in the Public Sector, but widespread non-compliance also exists in the private sector.
"So following our consultation, we will now apply the same changes to private sector organisations as well, but after listening carefully to representations made during the consultation, we will delay these changes until April 2020 and we will only apply them to large and medium-sized businesses."
Personal Allowance and Higher Rate Threshold
The Chancellor also announced that from April 2019, the personal allowance will increase to £12,500 from £11,850 and the higher rate threshold will increase to £50,000 from £46,350. This is one year earlier than planned and the rates will stay the same for the 2020-21 tax year.
These changes are expected to bring nearly one million fewer higher rate taxpayers than in the 2015-16 tax year.
To qualify for Entrepreneurs Relief, the minimum period to meet the relevant qualifying conditions has increased from 12 months to 24 months.
The change will be effective from April 2019 and the rate will stay the same at 10%.
To tackle the misuse of Entrepreneurs Relief, from 29th October 2018, shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company. This is, in addition, the current requirements of having at least 5% share capital.
The Chancellor said,
" I have received representations that I should abolish Entrepreneur’s Relief and put the savings towards funding our NHS commitments, but I do not believe we can have sustainable public services unless we have a dynamic economy.
"And encouraging entrepreneurs must be at the heart of our strategy, so I will retain the Entrepreneurs Relief, but to ensure it is going to genuine entrepreneurs, I will extend the minimum qualifying period from 12 months to 2 years.
Employer's NI – Employment Allowance
There will be changes to the Employment Allowance from 2020. However, as the relief is aimed at helping small to medium-sized businesses, the annual allowance of £3,000 will be removed for employers with employer NI contributions of at least £100,000 in the previous tax year.
This will mean that 99% of micro-businesses and 93% of small businesses will still qualify for the annual allowance if they have at least 1 employee.
Philip Hammond said,
"The Employment Allowance was introduced to incentivise businesses to take on employees, but at a flat rate of £3,000 per employer, it does not provide any real incentive for larger employers.
"So, from April 2020, we’ll target it at small and medium businesses with an Employer NICs bill under £100k a year."
VAT Registration Threshold
The government has confirmed there was no clear evidence for reform in relation to the design of the VAT registration threshold. The chancellor has therefore confirmed that the VAT threshold will remain at £85,000 for a further 2 years until April 2022.
The Autumn Budget statement continued as follows,
"We’ve explored all avenues to address the cliff edge effect of VAT registration, but our options are restricted by EU law.
"We will continue to work on this issue as our future VAT regime becomes clear over the years ahead."
The rate of Corporation Tax remains unchanged and this is due to reduce to 17% in 2020.
The Annual Investment Allowance will increase from £200,000 to £1m from 1st January 2019 to 31st December 2020.
For a full run-down of the main headlines from the Autumn Budget Statement 2018, view our YouTube Autumn Budget Summary, presented by Emily Caster, Accountant at Gorilla Accounting.
If you have any questions about the Autumn Budget Statement, please get in touch with a member of the Gorilla Accounting team on 0330 024 0406.