Chancellor Phillip Hammond delivered his first (and last) Autumn Statement to the House of Commons on 23 November, delivering an update on the Nation’s economy following the previous Budget and July’s Brexit vote.
There was some good news as the chancellor announced a “National Productivity Investment Fund” including amongst others:
- £2.3 billion housing infrastructure fund, aiming to build 100,000 new homes in areas of high demand;
- £1.4 billion to fund 40,000 ‘affordable homes’;
- £1.1 billion of investment in the English transport network;
- £220 million into the road network;
- £450 million into developing digital signalling on railways;
- £2 billion for technology and R&D;
- In excess of £1 billion for 5G and a full fibre network across Britain.
But the revised Office for Budget Responsibility figures show an increase in government debt over the coming years (partly to finance the above funding) along with reduced growth following the vote to leave the EU, so it was no surprise to hear the chancellor announce further scrutiny of the employment/recruitment sector as he seeks to close ‘the tax gap’ by raising additional tax revenue and balance the books. Measures include:
Off payroll working
Previously announced changes to how IR35 will operate in the public sector mean that the responsibility for deciding whether an engagement is caught by the IR35 rules will shift away from the worker and will sit with other entities within the supply chain instead. These changes will go ahead from April 17 as announced in the 2016 budget. Draft legislation is anticipated from Monday 5 December.
In addition to these changes, the chancellor announced that the 5% deduction for those workers caught by IR35 will be removed because “workers no longer bear the administrative burden of deciding whether the rules apply”. This change will be brought in alongside the broader changes above.
VAT flat rate scheme
‘Limited cost traders’ will now have to use a VAT flat rate percentage of 16.5% irrespective of their type of business. (A limited cost trader is one whose VAT inclusive expenditure on goods for the business in a prescribed accounting period is less than 2% of VAT inclusive turnover, or is more than 2% but less than £1,000 a year.) It is anticipated that this will capture many ‘labour only’ companies and will come into force from 1 April 2017.
General review into methods of working
In the response to a separate report on tax & NICs the chancellor acknowledged:
“…there are wider issues with the different tax treatment of different forms of labour, highlighted by the growth in self-employment and the number of single-person incorporations, leading to increased complexity and increased fiscal costs to the Exchequer. The Government has therefore undertaken to look at how it can ensure that the taxation of different ways of working and different forms of employee remuneration is fair, sustainable and efficient…”
and went on to reveal a future Employee business expenses consultation for 2017, announcing:
“…a call for evidence on the use of income tax relief for employees’ business expenses, whether or not they have been reimbursed by their employer…”
At the moment, there are no further details on either of the above, however further scrutiny into the sector should be anticipated.
Other measures included an increase in IPT from 10% to 12% which may increase the cost of premiums for contractors. The Chancellor also reaffirmed the Government’s intention to remove the tax benefits associated with salary sacrifice schemes.
Further details on the measures included in the autumn statement can be found on the government website: https://www.gov.uk/government/topical-events/autumn-statement-2016