Budget 2018: IR35 changes confirmed, delay to employer NICs change for termination payments and other news of interest to employers
The Chancellor delivered his 2018 budget yesterday. Amongst his announcements was confirmation that the Government intends to go ahead with its planned reforms to the IR35 legislation, aimed at tackling non-compliance with off-payroll working rules in the private sector. The changes will come into effect in April 2020 but will not apply to small businesses.
What is included in the changes to the IR35 legislation?
The changes will see the end user client made responsible for determining a contractor’s employment status where their contractor would be an employee if engaged directly, rather than through a personal service company and the fee-payer will be made responsible for operating PAYE. For small businesses, the responsibility for determining employment status and operating PAYE will remain with the contractor’s personal service company. The Government intends to use similar criteria to define small businesses as is found in the Companies Act 2006. This suggests that a business will not be covered by the changes if it meets two of the following criteria:
- Annual turnover of not more than £10.2 million
- Balance sheet total of not more than £5.1 million
- Not more than 50 employees on average.
Where can you find out more information about the changes to the IR35 legislation?The Government will publish a consultation in the coming months which is expected to contain further details on the operation of the rules, with the draft legislation expected in next summer’s draft Finance Bill. It has also promised to improve its Check Employment Status for Tax tool and provide extensive support and guidance for the private sector.
We will be running a seminar on worker status in the new year where we will consider the changes in more detail.
What else of importance to employers was announced in the budget?
The Chancellor also announced that there will be delay in introducing employer National Insurance Contributions (NICs) on terminations payments over £30,000. Originally planned for April 2018, then delayed to April 2019, the change will not now come into effect until April 2020.
Other items of interest to employers in the budget include:
- Employment is at a near record high and the Office for Budget Responsibility forecasts it is set to keep growing, with 800,000 more jobs forecast by 2022. The unemployment rate is at its lowest for over 40 years.
- The Employment Allowance, which enables eligible employers to reduce their employer’s NICs liability by up to £3,000 each year) will be restricted to employers with a NICs bill below £100,000 in the previous tax year.
- The National Living Wage (for workers aged 25 and over) will increase from £7.83 an hour to £8.21 from April 2019. There will also be increases in the National minimum Wage, with the rate for 21 to 24 year olds increasing from £7.38 to £7.70 per hour, for 18 to 20 year increasing from £5.90 to £6.15 per hour and for 16 to 17 year olds increasing from £4.20 to £4.35 per hour. The apprenticeships rate will increase from £3.70 to £3.90 per hour.
- The personal allowance will rise to £12,500 (up from £11,850) and the Higher Rate Threshold will rise to £50,000 (up from £46,350), both from April 2019. These changes were originally not due to come into effect until April 2020 and will be maintained in 2020.
- The lifetime allowance for pension savings will increase in line with CPI for 2019-20, rising to £1,055,000.
- Large businesses will be able to invest up to 25% of their apprenticeship levy to support apprentices in their supply chain from April 2020. Small employers will have their contribution cut by half - from 10% to 5%.
- A 2% UK Digital Services Tax, expected to raise more than £400m a year, will be introduced from April 2020 payable by large digital firms (social media platforms, search engines and online marketplaces) which have at least £500m a year in global revenues. The tax will be payable on revenues earned from UK customers/users. A consultation will take place before the tax comes into effect.
- The minimum period throughout which the qualifying conditions for Entrepreneurs' Relief must be met will be extended from 12 months to 24 months from April 2019 and the qualifying criteria themselves are also being tightened up with immediate effect.
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