For recruiters, in many ways, the main news arising from the Spring 2017 Budget is what the Chancellor did not say, rather than what he did.
In particular, while the Chancellor specifically made mention of workers supplying their services through limited companies, there were no IR35 announcements. With regard to the changes to off-payroll employees working in the public sector, coming into effect on 6 April 2017, there was no indication that the government wishes to extend these provisions to the private sector. On the HM Revenue & Customs (HMRC) website it was simply confirmed that, following the technical consultation on the legislation, the only change to the provisions is that it will be optional for the agency or public body as appropriate to take account of the worker’s expenses when calculating the tax due. No further amendments were mentioned.
The Chancellor’s mention of workers operating via limited companies in his speech was actually a pre-cursor to his announcement that the dividend tax allowance of £5,000 per annum will be cut to £2,000 from April 2018. Despite some initial confusion as to whether this only applied to single director/shareholder companies, the details confirm it applies to every taxpayer.
The headline personal tax change effective from April 2018 was the announcement that Class 4 National Insurance contributions (NICs), paid by self-employed workers on their trade profits will increase from 9% to 10% and then again to 11% in April 2019. While the initial rise coincides with the abolition of Class 2 NICs (currently paid at a flat rate of £2.80 per week), the government estimates that any self-employed worker earning over £16,250 will have to pay more NICs. This will have a direct impact on agencies supplying workers under the self-employment and Construction Industry Scheme (CIS) models. For the avoidance of doubt, there were no announcements made in respect of employment intermediary reporting or CIS changes.
The rationale given for the increase in NICs for the self-employed is that due to the new flat rate state pension, the self-employed are now by and large entitled to receive the same state benefits as the employed, despite currently paying a lower rate of NICs. The Chancellor did mention the fact that there still remain some state benefit entitlement discrepancies between employed and self-employed, but he also referred to the current review led by Matthew Taylor into modern working practices which is due to report in summer 2017; but a preliminary headline to the full report is that Taylor considers tax to be a key driver towards encouraging workers to be self-employed. We wait to see the final report from this review and will comment on its tax implications in due course.
UPDATE: On 15 March 2017, the Chancellor announced that changes to National Insurance for self-employed workers, as outlined at the 2017 Budget, would not now take place as announced.
The Chancellor briefly mentioned but did not make further announcements on the Apprenticeship Levy. This is being introduced on 6 April 2017 and will charge 0.5% on pay bills in excess of £3 million per year. Employers/agencies paying the levy will be entitled to use the amounts paid to fund qualifying apprentices but that is not practical for many who do not pay for apprenticeships, especially agencies. The government has previously announced that from 2018 it intends to allow levy payers to transfer up to 10% of unspent levy funds to other businesses in their supply chain, but no further details of how this would work or the actual start date have been published.
The government previously announced that Budget 2017 would see the publication of consultations on employee expenses and the taxation of benefits in kind. HMRC has now confirmed that these consultations will be published on 20 March and we will provide further analysis in due course.
Our full analysis of the Spring Budget 2017 announcements is available here.