Autumn Budget 2017: 10 contractor takeaways
A vow to consult on extending IR35 reforms to the private sector -- following their April launch in the public sector -- is the top takeaway for contractors of Autumn Budget 2017.
The relevant chapter from the Autumn Budget is reproduced below. Nine other areas of Philip Hammond’s second Budget potentially affecting contractors follow that reproduction.
1. 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.”
2. Employment status
Immediately underneath the off-payroll announcement, the government vows to publish a discussion paper as part of its response to the Taylor Review.
The paper will “explore the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer.”
Maintaining the same more considerate tone it struck in explaining the off-payroll announcement (above), the Treasury then says:
“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.”
3. Umbrella Companies
As part of a wider announcement, the government says that HMRC will work to improve its guidance on employee expenses, “particularly on travel and subsistence and the process for claiming tax relief on non-reimbursed employment expenses.”
“In April 2016, we saw the introduction of the T&S Legislation,” reflects Lucy Smith, boss of Contractor Umbrella.
“However, there are still umbrella companies allowing expenses for tax relief purposes and so finally, it appears that HMRC have taken note and they are looking to make this clearer.”
She added that the anticipated update from HMRC would be seen as a vindication “for those of us [in the umbrella company sector] who have stuck by the rules and remained compliant”.
The promise of the Revenue guidance was made alongside a clarification that employers will no longer be required to check receipts when reimbursing employees for subsistence using benchmark scale rates.
Meanwhile, and seeming to represent a major boost to contracting body IPSE (which has campaigned hard on the training tax rules for people who work for themselves), Autumn Budget 2017 announces:
“The government will consult in 2018 on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs.”
4. VAT threshold freeze
Alerts by the contractor sector that a significant dent in the ceiling above which VAT is payable could cause damage are acknowledged in Autumn Budget 2017, as it says the £85,000 threshold will be frozen, pending a consultation on its design.
5. Avoiders and Evaders
A £4.8billion package of anti-evasion and anti-avoidance measures is newly announced at Autumn Budget 2017, for deployment between now and 2022-23. It includes a £15million a year crackdown on employers “abusing” the NI Employment Allowance.
6. Disguised Remuneration
Included in the £4.8bn package is the introduction of the “close companies’ gateway” to tackle Disguised Remuneration (the gateway has been revised following consultation). Also to tackle DR, the government is introducing new measures to ensure liabilities from the 2019 loan charge are collected from the “appropriate person.”
7. VAT clampdown
Another tranche of the anti-avoidance and anti-evasion package relates to VAT. In particular:
From the Spring of 2018, online marketplaces will be required to ensure that VAT numbers displayed for businesses operating on their website are valid. They will also be required to display a valid VAT number when they are provided with one by a business operating on their platform.
Online marketplaces will also be held jointly and severally liable for the unpaid VAT of overseas traders on their platforms to include all (including UK) traders.
8. Business Taxation, Reliefs and Allowances
Despite no mention of recommendations to simplify corporation tax, the government is stepping in to stop a perceived abuse. Specifically, the corporate indexation allowance will be frozen from January 1st, 2018.
At Autumn Budget chapter 3.26, the Treasury states:
“Accordingly, no relief will be available for inflation accruing after this date in calculating chargeable gains made by companies.”
Elsewhere in the full Autumn Budget 2017 report, the government announces an increase in the main R&D Tax credit to 12%, and an ongoing commitment to work with employers to implement the Apprenticeship Levy.
Businesses will also likely welcome the chancellor announcing a doubling in the Enterprise Investment Scheme Annual Allowance where it is invested in knowledge-intensive companies. They will be less keen to read nothing about reinstating the Annual Investment Allowance to £500,000 or more. However, in light of Brexit uncertainty troubling businesses, they were told that £3bn has been set aside to prepare for the UK’s departure from the EU.
9. Technology and IT
At Autumn Budget 2017, the government tries to bolster its IT credentials by saying it will:
- Invest over £500m in a range of tech initiatives from Artificial Intelligence, to 5G and full fibre broadband. It will also create new AI fellowships and fund 450 PhD researchers on AI.
- Unlock £20bn of new investment in UK scale-up businesses, including through a new fund in the British Business Bank.
- Invest over £21m over the next four years to expand Tech City UK’s reach and support regional tech companies and start-ups to fulfil their potential.
- Provide £84m to upskill 8,000 computer science teachers, and work with industry to set up a new National Centre for Computing.
- Inject £30m to trial new solutions to improve mobile and digital connectivity on trains (albeit only on the TransPennine route).
- Spend £30m in the development of digital skills distance learning courses, so people looking to return to the workplace can learn “wherever they are, and whenever they want.”
- Invest £84m for fitting state-of-the-art in-cab digital signalling across a range of trains. Add a further £5m on development funding for a digital railway upgrade on the South East and East London Lines, on top of funding for a digital signalling scheme at Moorgate.
- Inject the NHS with £200m for efficiency programmes, partly to help fund technology that will allow more money and staff time to be directed towards patient care.
- Establish a new £10m ‘Regulators’ Pioneer Fund’ to help emerging technologies get to market.
The taxman will move to a new points-based approach for late or missing self-assessment returns.
He will then use new technology to recover additional self-assessment debts in closer to real-time by adjusting the tax codes of individuals with PAYE income. These changes will take effect from April 2019.
His plan to introduce Making Tax Digital is on track for 2019 too, as is a 2018 consultation on how to make the taxation of trusts “simpler, fairer, and more transparent.”
He has meanwhile offered to remove any benefit-in-kind charge arising on electricity that employers provide to charge employees’ electric vehicles from April 2018.
He will however let disincorporation relief (available to limited companies who want to become sole traders as tax-efficiently as possible) die, rather than replace or improve it, as he was recommended.