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Autumn Statement – IR35 changes confirmed

Public sector rules to come into force next April

Chancellor of the Exchequer, Philip Hammond, delivered his first and last Autumn Statement, as the government moves to a single major annual fiscal event in the future.

Next year’s spring Budget will be the last one to be delivered in the springtime, with subsequent Budgets taking place in the autumn. This does mean however that we will have a second Budget in autumn 2017 to switch to the new timetable. From winter 2017, Finance Bills will be introduced following the Budget with the aim to reach Royal Assent in the spring, before the beginning of the following tax year.

IR35 and the public sector

Whilst it was no secret that, for public sector engagements, the government planned to push responsibility for assessing a contractor’s IR35 status on to the agency (in most cases), the reform was finally confirmed in the ‘Green Book’.

The chancellor also announced that, where IR35 is deemed to apply, the 5% ‘tax-free’ allowance will be removed. This is the allowance that is deducted from the contractual income, designed to cover unspecified expenses and therefore reduces the ultimate tax and NIC bill.

The announcement is in response to feedback to HMRC’s consultation document, ‘Off-payroll working in the public sector:  reform of the intermediaries legislation’ that closed in August, and reflects the fact that a worker will no longer bear the administrative burden of deciding whether the IR35 rules apply. This is a feeble excuse as the flat rate reduction allows for the general expense of running a business, such as training costs as well as assessing employment status. The more likely reason for its abolition is that it would have made payroll calculations that little more difficult.

Whilst the government seem intent on pushing as many public sector contractors as possible to be ‘on-payroll’, there should not be undue panic. Many advisors and agencies in the industry are already attempting to build pragmatic and compliant processes which will ensure the skilled workers pivotal to the UK’s infrastructure are not forced out of the public sector.

Non-IR35 announcements that may be of interest to contractors include:

Tackling abuse of VAT Flat Rate Scheme

As from 1st April 2017, a new 16.5% VAT flat rate scheme will apply to businesses with limited costs, such as labour-only businesses. By the nature of their work, this will apply to the vast majority of contractors.

A limited trader will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1,000 p.a if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

  • capital expenditure
  • food or drink for consumption by the flat rate business or its employees
  • vehicles, vehicle parts and fuel (except for transport services businesses)

An easy-to-use online tool will be available to help businesses determine whether they should use the new rate.

Income Tax & NIC

Personal allowance & higher rate threshold

Next year the personal allowance will rise to £11,500 and the higher rate threshold to £45,000. The government will meet its commitment to raise the personal allowance and higher rate threshold to £12,500 and £50,000 respectively, by 2020/21.

Once the personal allowance reaches £12,500 it will then rise automatically in line with inflation.

NIC threshold

In a move to simplify the payment of NIC for employers, employee and employer’s NIC thresholds will be aligned from April 2017, meaning that both employees and employers will start paying NIC on weekly earnings above £157.

NIC limitation

National Insurance is not a tax but rather a civil debt, so its recovery is governed by the Limitation Act 1980, which means that debts older than 6 years are unenforceable. From April 2018 the government will remove NIC from the effects of the Limitation Act and align the time limits and recovery process for enforcing NIC debts with other taxes.

Salary sacrifice

Following consultation, tax and employer NIC advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions, childcare, Cycle to Work and ultra-low emission cars. This means that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Valuation of benefits-in-kind

The government will consider how benefits-in-kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence of all other benefits-in-kind at Budget 2017.

Employee business expenses

A call for evidence will be made at Budget 2017 on the use of income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.

Corporation Tax

Loss relief

Following reforms announced at Budget 2016, legislation will be put in place that will restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date.

Non-resident companies

The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change as it wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax.

Savings

An increase in the ISA limit from £15,240 to £20,000 will be effective from April 2017.

The band for savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017/18.

Tax administration

Legislation will be put in place to provide HMRC and taxpayers earlier certainty on individual matters in large, high risk and complex tax enquiries.

Avoidance and Evasion

Disguised remuneration schemes

Budget 2016 announced changes to tackle the use of disguised remuneration schemes by employers and employees. The scope of these changes will now be extended to tackle the use of such schemes by the self-employed.

Sanctions and deterrents

As signalled at Budget 2016, a new penalty will be introduced for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.

Counter avoidance

The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation, which is expected to accelerate over £450 million in tax revenue by 2021/22.

Offshore tax evasion

A new legal requirement will be introduced to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.

Consultation will take place on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

Non-domiciled individuals

From April 2017, non-domiciled individuals will be deemed UK domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin.

Also, from April of next year, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust.

By Andy Vessey

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25 thoughts on “Autumn Statement – IR35 changes confirmed”

  1. Biggus Dickus

    I’ve been contracting about 20 years. Almost my entire career I’ve been under constant attack, first from a retarded Labour Government and then from a retarded Conservative Government. I used to vote Conservative but won’t ever be doing that again.

    Just glad I’m going to be leaving contracting in a year or so. On top of increased taxes and never-ending harassment, it’s getting harder and harder to find work due to a market saturated with cheap foreigners. Getting squeezed at both ends and it’s just not worth it anymore. My cunning new plan is to join the other half of the country and earn up to the tax allowance each year (£11500) and claim everything I can in working tax credits etc. This means I’ll only have to work a couple of months a year and will then be free to do my own thing the rest of the year. I’d recommend this route to anybody if you can get your monthly outgoings right down. It’s just not really worth working as a contractor anymore.

    • The Q

      >My cunning new plan is to join the other half of the
      >country and earn up to the tax allowance each year
      >(£11500) and claim everything I can in working tax credits
      >etc. This means I’ll only have to work a couple of months
      >a year and will then be free to do my own thing the rest
      >of the year. I’d recommend this route to anybody if you
      >can get your monthly outgoings right down. It’s just not
      >really worth working as a contractor anymore.

      Or if you have enough to get by on, and still have the technical interest/motivation, you can do what I and others are doing and try do your own thing in a start-up.

      In 6+ months I have been getting the stimulation and enjoyment in work that I haven’t really consistently had since before the dotcom crash of 2001.

      • Biggus Dickus

        There are many things I’d like to do but haven’t had the time due to work. The one thing I won’t be doing is any kind of start up venture remotely close to IT. The market is saturated IMO and just not worth it. My key consideration is to pay no tax/ni at all and to claim the maximum benefits I can. I wasn’t always like this but 20 years of government attacks have changed my outlook somewhat.

        I reckon I will have about 10 months a year to do my own thing. Very nice.

        Also, the powers that be have completely stuffed this country with unlimited immigration. It is getting harder and harder to travel anywhere now. Places I used to commute to daily ten years ago are no longer commutable unless you want to spend 5 hours a day sat in traffic.

        Time to kick back and take it easy. I’ll probably be thanking the Government in a couple of years

        Good luck with your venture. Must be great to feel inspired again.

      • Need any help?

        Need any help with that?
        …or:
        Anyone want to help build/market a new app?
        …or:
        Can anyone recommend a good site that factors out direct-for-the-client contracts?
        …or:
        Why don’t a few of us club together and beat this? I can do this on my own, of course, but if you don’t divide up the labour, the big boys are always likely to beat a one man band.

  2. Soprano

    Ah, these “free market”, “pro business” Tories. What a lie.

    And they will now blame everything on Brexit at every available opportunity, no doubt based on the tortured models produced by HMT.

    Well, Hector got what they wanted, at least for the public sector. I remain skeptical that they will roll this out for the private sector, as it is largely a publicity stunt, and the dividend tax covers the revenue aspect, even though it is unjustified. Hopefully this will be it for now and they will content themselves with their little “wins” until the Autumn 2018 budget.

    One thing is for sure – there is nothing ‘conservative’ about the Tories except keeping them and their cronies rolling in dough, and giving a middle finger to everyone else. Even the non-contractor aspects of this budget were laughable.

    Get on with tax simplification AND reduction (and spending reduction), or just stop calling yourselves conservatives. You’re just New Labour ^2.

    • Graham Bennett

      I was thinking the same listening to Radio 4 on the way home this evening. They have the perfect cop-out for 5 years of failed austerity for the small man. Still worth it, mind. I’d live in a tent to get out of the EC.

  3. Chartered Eng (Rtd)

    Agree with all that said above – having been contracting in the oil & gas industry for some 30+ years, I now find it too stressful to try and navigate the IR35 maize and prefer to rely on money from the Government rather than use my expertise to earn foreign currency for them.

  4. Thomas Paine

    Jesus what a bunch of whinging UKIP’rs you lot sound like, makes me ashamed to be associated with contractors like you. Clearly you have been coining it for 20 years if you can afford to live off £15k while screwing tax paying (quite rightly) contractors like myself.

  5. Soprano

    “Clearly you have been coining it for 20 years if you can afford to live off £15k while screwing tax paying (quite rightly) contractors like myself.”

    Some people just accept whatever crap is shoved down their throats, and then want a medal for it.

  6. Steve

    What it is down to is a complete lack of imagination by both Osborne and Hammond. Cameron said they were going to repeal IR35 before he was elected and since then he and his successor and their chancellors have done nothing about this particularly vindictive legislation.

    The entire tax system, it is plain to see, is no longer fit for purpose. It has no way of dealing with the real major problem which is globalised business, as opposed to IT contractors and the such like. And, as much as you might like to call it whinging Thomas, plainly you havent been in this industry that long. IR35 is a Brownian draconian sledgehammer to crack a walnut and this current Tory party does not have the imagination or vision to come up with a plausible, modern taxation solution for the 21st century that is capable of dealing with globalised business without penalising the self employed who provide valuable skills that major solutions providers dont always have on their books on a permanent basis.

    Anyone with half a brain can see that constantly patching up a 15000 page tax code that is riddled with holes is a waste of time. The entire code needs to be binned and replaced with a simpler, flatter structure which is less prone to abuse and interpretation by accounts. This party, faced with an unelectable opposition for the best part of a decade has the chance, the time, the opportunity to revolutionise taxation, but not the vision.

    But, you’ve got more chance of nailing jelly to the ceiling than getting these useless career politician idiots to sort it out.

    • Geoff

      You are right, the tax system is far too complicated, and has been so for some time. However, the chickens may be about to come home to roost soon. HMRC is pressing ahead with making tax digital, and believes there will be a good choice of free software to make this happen. The software will be loaded with prompts to ensure users claim the right reliefs and allowances etc. The interesting part will be when the developers realise that not only is the tax system far too completed to make this work, particularly for free software, but all Chancellors take delight in fiddling with the rules every year, making maintenance of the package economically impossible. At that point, when the developers walk away, perhaps there will be a realisation that the tax system is too complex and changes like shifting sands. I am almost looking forward to it.

  7. Soprano

    Thomas is in all likelihood a troll, or a moron.

    Neither speaks too well of him.

    Most of us here pay an awful lot in taxes, even operating outside IR35. What the government now wants to do is basically pretend we’re just employees, but then confer none of the benefits of this style of working. End clients clearly know this is a crock of shit, so won’t accept it, hence why it is being restricted to the area controlled by the govt for now, i.e. the public sector. Even assuming the govt did lose a lot of revenue from contractors outside IR35 – and it doesn’t, Hector can’t even prove they ‘protect’ a paltry £400m p.a. pre-dividend tax… the dividend tax is now here, so IR35 is redundant barring Fri-Mon incorporations.

    I agree that the tax code is wholly unfit for purpose. The conservatives could replace this with a simpler, lower tax system, but for that to occur they’d need to be conservatives and not middle of the road crony interventionists. It’s more to do with the fact that they want to buy more votes, don’t want to upset anyone by cutting spending/borrowing and will hit whoever will matter the least electorally next GE. That’s all.

    • Herbie Dumplings

      Public sector contractor = all the tax but none of the pension / sick pay / holiday pay liabilities.

      I wouldn’t treat divi tax as a silver bullet in the private sector either. It’s going to catch too many in Westminster to be around for long IMO (George Osborne and Margaret Hodge to name but two – not to mention all those Tory voting pensioners.) Expect an IR35 rollout to the private sector to be announced at the same time as withdrawal of the divi tax – presumably next year’s inaugural Autumn Budget after the public sector “pilot” has been shown to be a “success”.

      • mark williams

        Absolutely correct .By rolling out to the Public sector now they are in fact ensuring the agencies and them selves have all the mechanisms in place and working before going Global ( or all UK contractors)
        I think its time to leave “IT” and do something else -preferably in the middle of a government project

        difficult times for all I am afraid there is no silver bullet for the government other than revolution
        which wont happen in the UK we’re all to dippy
        unlike the french who would act

      • mark williams

        Absolutely correct .By rolling out to the Public sector now they are in fact ensuring the agencies and them selves have all the mechanisms in place and working before going Global ( or all UK contractors)
        I think its time to leave “IT” and do something else -preferably in the middle of a government project

        difficult times for all I am afraid there is no silver bullet for the government other than revolution
        which wont happen in the UK we’re all to dippy
        unlike the french who would act

  8. Soprano

    Thomas is in all likelihood a troll, or a moron.

    Neither speaks too well of him.

    Most of us here pay an awful lot in taxes, even operating outside IR35. What the government now wants to do is basically pretend we’re just employees, but then confer none of the benefits of this style of working. End clients clearly know this is a crock of shit, so won’t accept it, hence why it is being restricted to the area controlled by the govt for now, i.e. the public sector. Even assuming the govt did lose a lot of revenue from contractors outside IR35 – and it doesn’t, Hector can’t even prove they ‘protect’ a paltry £400m p.a. pre-dividend tax… the dividend tax is now here, so IR35 is redundant barring Fri-Mon incorporations.

    I agree that the tax code is wholly unfit for purpose. The conservatives could replace this with a simpler, lower tax system, but for that to occur they’d need to be conservatives and not middle of the road crony interventionists. It’s more to do with the fact that they want to buy more votes, don’t want to upset anyone by cutting spending/borrowing and will hit whoever will matter the least electorally next GE. That’s all.

  9. Tod Barnett

    Here Here. to all the above

  10. peter hutchinson

    I agree with all of the above and would like to add the reason we are in so much debt is constant useless govt policy, if it wasn’t so short term we could be a powerfull economy with no debt and full uk employment i.e not giving most jobs to eu nationals who basically make big companys richer us contractors poorer most of the eu nationals don’t spend there money in the uk they push housing to the limit thus making housing expensive and wages going the other way we are doomed until we get a real leader to get rid of the dross that is Whitehall roads crumbling etc debt laden but still spending 13 billion of borrowed money on overseas aid! get real get wise tackle the real problems in finance to many on welfare bleeding us and too many at the top paying little or nothing while we the workers get hammered for trying to make a living feel like giving up but I just couldn’t sit at home roll on a dictator putin would be better than this shower or trump

  11. The Q

    Well sad, Steve.

    I have been waiting to see the govt official response to the Uber court ruling, which is actually a move towards the disguised employee = disguised employer notion that IR35 so cynically ignores (in order to avoid upsetting Big Business (TM) ) .

  12. Soprano

    “Public sector contractor = all the tax but none of the pension / sick pay / holiday pay liabilities.”

    Which they will soon find out when it comes to paying for the pensions and other benefits for any permies they require to fill in the gap of exiting contractors.

    However I will disagree on one point; I don’t anticipate a private sector rollout until April 2019 at the earliest, and that is assuming they can get enough buy-in from big business. They might yet opt to devise some ill conceived scheme like the FLC for private sector contractors.

  13. Biggus Dickus

    “Jesus what a bunch of whinging UKIP’rs you lot sound like, makes me ashamed to be associated with contractors like you. Clearly you have been coining it for 20 years if you can afford to live off £15k while screwing tax paying (quite rightly) contractors like myself.”

    I’m certainly a UKIP voter, nobody else comes close to representing me. In case you haven’t noticed LibLabCon are all slighty different faces of the same coin – the establishment, who have been doing such a great job for us all for the last 20 odd years.

    I didn’t always have the attitude I have. The attitude I now have is as a direct result of the criminal scum we have had governing us for many years now. The system is completely broken. The sooner everybody opts out and it breaks, the better for everybody.

    Yes, I can live on £11500 a year because I have saved hard, my kids are grown and I have a mortgage free house. Why continue working with the Government constantly jumping on your back like some kind of demented monkey?

    Does it bother you about the millions of people getting well over a thousand a month in work tax credits/child benefit (many from Eastern Europe)? People often working 16 hour weeks who have never contributed anything to this country. At least I have paid hundred of thousands in tax over the years. Why should I continue funding all these people. Why should they be able to claim all this money for working part-time but not me? Nah, if you can’t beat ’em might as well join ’em.

    I’d suggest you haven’t suffered enough abuse at the hands of your Government yet. Give it another ten years and another ten retarded rules and you might start to get it.

  14. Wodewick

    I fear you may have spent too long reading the Daily Mail. The existence (or not) of a sponging underclass is a lot more complicated than they ever suggest, and is very well covered in Good Times, Bad Times: The Welfare Myth of Them and Us (https://www.amazon.co.uk/Good-Times-Bad-Welfare-Myth/dp/1447320034/ref=sr_1_1?ie=UTF8&qid=1480169629&sr=8-1&keywords=the+welfare+myth). I’d strongly recommend it.

    At least you’re considering jacking it all in, unlike many of my colleagues who scream blue murder every budget and every autumn statement but never quite find something else to do with their lives.

    Incidentally, people with more than £16k in savings are ineligible for Universal Credit, so good luck with that.

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