We have a new Prime Minister and a new cabinet and on Wednesday 23 November the new Chancellor gave his first Autumn Statement. Below we have highlighted some of the salient points as it would affect you.
IR35 and government contractors
It was announced that the government will reform the off-payroll working rules in the public sector from April 2017. Furthermore, the Treasury confirms that it will shift the responsibility and liability for IR35 in the public sector from PSCs to the ‘paying agents’, from April 2017.
This basically means that any contractor working for a public sector client will, if not already received, an email from their agency (‘paying agent’) to confirm that they are operating outside the scope of IR35. Also, the 5% expense allowance under the deemed calculation rules is to be removed. This is under the guise that the entire 5% allowance would be spent on determining whether the contactor is outside the scope of IR35. The subtext here is that any one contracting for a government end client would be within scope of IR35 and will automatically take up a PAYE permanent position somewhere.
Presently, the focus will be on contractors with a government body as the end client. However, this may well get extended to other contractors. Qdos Contractor have a product available to help on this matter and we advise that if your end client is a government body that you speak with Qdos Contractor about the product.
Flat rate VAT
The government will be introducing a new 16.5% flat rate VAT category which will affect many contractors. This is to be introduced from 1 April 2017 and is for businesses with limited costs, such as many labour-only businesses. This will affect most contractors and will virtually remove the benefit of the Flat Rate VAT scheme. To put some numbers to the impact, an IT contractor earning £100,000 would have seen a flat rate saving of £3,800, under the new rules this will reduce to amount £200.
The introduction of this reform may lead to many contractor reverting to the standard rate of VAT despite the extra administrative burden and cost involved.
Benefits in Kind – salary sacrifice clampdown
Another announcement with the potential to leave contractors worse-off is the introduction of the salary sacrifice clampdown. This means that all benefits in kind (for example private medical insurance but excluding child care vouchers and pension) will have to go through payroll and will be subject to Employees NI as well as Employers NI.
If you take any benefits from the company such as private medical please get in touch with us and we will advise you accordingly.
Alignment of NI thresholds
Both employees and employers will start paying national insurance (NI) on weekly earnings of more than £157 from April 2017. The current thresholds for 2016-17 stand at £155 per week for employees and £156 for employers. This change aims to simplify the NI payments for employers, but will lead to a marginal increase in employer costs – the Treasury said this will amount to no more than £7.18 per employee per year.
Nothing that new here except an announcement renewing the focus of this government to tackle aggressive tax avoidance.
As a reminder to those clients who may have previously been engaged in tax avoidance schemes, Budget 2016 has introduced several measures in respect of these rules. Two key measures are as follows:
- Some promoters have implemented certain arrangements post 2011 that they suggested were not caught by the disguised remuneration legislation. The government will introduce legislation to make it clear that the disguised remuneration legislation does apply to such schemes (as an example, a member of an unapproved pension scheme might engage in ‘pension liberation’ by selling his annuity rights for a lump sum and claiming that he had given fair value so should not be taxed on it – a targeted anti-avoidance rule will counter this);
- Where a loan was made to an employee by a third party before the disguised remuneration legislation came into effect, a disguised remuneration charge (through PAYE and NIC) will arise at 5 April 2019 if the loan is not repaid on or before that date and no settlement has been agreed with HMRC.
Other points to note from the Autumn Statement
There were no changes to the previously announced tax bands; the personal allowance in 2017/18 will, as previously announced, be £11,500 (up from £11,000), and the higher rate threshold will be £45,000 (currently £43,000).