Autumn Budget confirms Off-Payroll roll-out to private sector to be delayed
The main headline for contractors in Philip Hammond’s 2018 Autumn Budget is undoubtedly the confirmation that the IR35 “Off-Payroll” rules will indeed be extended to the private sector, one year later than previously anticipated, in April 2020. The year delay is “to give people and businesses time to prepare” for the new rules, which will shift the responsibility of IR35 assessment to end-clients and agencies and away from individual contractors.
The chancellor also announced an exemption for small organisations (although how small is still unclear), a hitherto unannounced aspect of the private sector roll-out of the Off-Payroll rules. This means that some contractors at least will still operate under the status quo and be able to determine their IR35 status for themselves. For larger organisations, the government is to arrange support and guidance from HMRC ahead of implementation. Many critics of the Off-Payroll rules argue that the vast majority of firms simply aren’t capable of making IR35 determinations on behalf of their contractors, and are concerned that they will resort to a default position of “inside IR35” instead of properly assessing each individual’s status.
The chancellor also announced a major new tax which will target online companies that have historically found it easy to avoid the UK tax net due to the global, intangible nature of the services that they provide. The 2% Digital Services Tax (DST) will apply to search engines, social media platforms and online marketplaces that earn more than £500 million globally, of which at least £25 million revenue is linked to the participation of UK users. The exchequer expects to receive £300-400 million from this tax annually.
Any revenue from new or increased taxation is likely to be offset, however, by a classic Tory tax cut: the Personal Allowance and Higher Rate tax thresholds are to be increased to £12,500 and £50,000 respectively next year, moving up to 1 million people out of higher rate tax, according to Treasury estimates. This effective tax cut will reduce the amount of income tax collected by around £2 billion per year.
An end to austerity was promised in the lead up to the Budget, and Mr Hammond arguably delivered, assisted by buoyant tax receipts and an improved outlook for employment. Theresa May’s promise of £20.5 billion additional annual NHS funding was confirmed, with commitments to increase mental health budgets year-on-year. Other public services are to receive a boost of £3.2 billion by 2022-23 in the “biggest giveaway budget since the OBR was created”. Defence spending is to increase by £1 billion, including the UK’s new nuclear submarine programme.
Other measures announced today include increases to controversial Universal Credit Work Allowances of £1,000 at a cost of £1.7 billion, an increase of 4.9% in the National Living Wage to £8.21 an hour from April 2019, and an extra £500 million allocated to pay for Brexit preparations.
With his hands relatively tied by Brexit, the chancellor fleshed out his Budget announcement with a series of trivial measures, such as a new 50p coin to commemorate Brexit, £60 million for planting trees, £10 million for air ambulances and £420 million allocated to fix potholes in Britain’s roads. Labour’s shadow foreign secretary Emily Thornberry was quick to point out on Twitter that potholes are thus to receive more money than school pupils, in this autumn’s Budget.
Mr Hammond was today helped by an Exchequer in surplus against OBR estimates – choosing to blow the lot on giveaways rather than reduce borrowing enough to finally balance the budget. In fact, the Office of Budget Responsibility believed he could have balanced the budget by the middle of the next parliament. With the amount of political pressure surrounding this budget its hardly surprising that he has chosen a more generous stance – we will see how just how successful it has been when Parliament vote to pass (or reject) the Finance Bill in the coming weeks.