IR35 reform unlikely to be extended to private sector at Budget
Consensus is growing that last year’s changes to the IR35 rules, which allow public sector end-clients to deduct PAYE income tax and National Insurance at source from contractors working through their own limited companies, are unlikely to be extended to the private sector in the 2018 Autumn Budget, scheduled to be announced on Monday, 29th October.
The risk of parliament voting against the finance bill is considerably heightened this year, as both the DUP and ERG have threatened to vote down the Budget should the Brexit negotiations result in an unfavourable deal. In the event that they do so, the failure to pass the finance bill through parliament would typically be construed as a vote of no confidence in Theresa May’s Government and could potentially trigger a general election.
With existing concerns over the rollout of universal credit and the continuation of austerity amongst Tory backbenchers, the likelihood is perceived to be relatively low that Philip Hammond will include any further controversial measures such as IR35 reform this autumn, that could potentially tip the vote against the Government.
In addition, in response to a question in the Commons last Tuesday, Financial Secretary to the Treasury Mel Stride said that the Treasury was still “considering the responses to the consultation” on IR35 reform. This would indicate that no new legislation is impending, however, the surprise publication of avoidance legislation is not unheard of.
Reading between the lines, it’s likely that IR35 reform has been parked until we have a resolution on Brexit, and the Treasury Secretary’s comments are in line with such an assumption.
The last time a UK Government failed to pass a finance bill was in 1909 when Lloyd George’s “People’s Budget” was blocked by the House of Lords, sparking a constitutional crisis that resulted in the removal of the Lords’ power to amend financial legislation. In 1994, Chancellor of the Exchequer Kenneth Clarke suffered an embarrassing defeat in the Commons by backbenchers on proposals to increase the rate of VAT on domestic fuel that directly contradicted an electoral pledge not to.
Measures expected to be included in this autumn’s Budget include the rollout of universal credit, with taxes likely to be increased to fund the recent £20million pledge on NHS spending and further commitments to increase public spending made by Theresa May at the Tory party conference.