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.
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:
As from 1st April 2017, a new 16.5% VAT flat rate 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:
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
An easy-to-use online tool will be available to help businesses determine whether they should use the new rate.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Legislation will be put in place to provide HMRC and taxpayers earlier certainty on individual matters in large, high risk and complex tax enquiries.
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.
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.
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.
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.
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.