Fraser Farrington, Morson Group Tax Manager gives us an overview of the recent budget announcements:
Phillip Hammond, the Chancellor of the Exchequer, delivered his first Budget on November 22nd 2017. This was the first full budget post Brexit, and the reductions in targets and forecasts reflect the uncertainty created by the referendum outcome. It was a relatively quiet budget for businesses, with no major changes, however a number of potentially significant ‘consultations’ were announced, which will presumably give the Government some wiggle room in enacting the changes, depending on how Brexit negotiations progress.
The key announcements and measures for the recruitment/temporary worker sector are included below.
For more extensive budget coverage, including a budget calculator to see how the budget could affect you, please see the BBC budget website
For more detailed budget information, including the budget documents themselves and legislative detail, please see the government budget website
General economic review
- Growth forecast for 2017 to be 1.5% (down from 2% in the April statement and 2.2% at the previous budget)
- Forecasts for 2018, 2019, 2020 and 2021 revised down to 1.4%, 1.3%, 1.5% and 1.6% respectively.
- As a result of the above reductions in growth forecasts, revenue is expected to fall, so borrowing will increase to compensate for the difference.
- Another 600,000 people to be in work by 2022 (a reduction on the previous budget target of a million jobs forecast to be created by 2020)
Off-payroll working – IR35 changes
Although the government did not announce formal plans to roll out the public sector IR35 changes to the private sector, a formal consultation into the change has been announced. Section 3.7 of the budget document includes the following:
“The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
It is of note that the Government consider there is sufficient ‘non-compliance’ in this sector to warrant mentioning in the budget – further change should be expected here.
Employment status review
Following the Taylor report earlier this year, the Government has announced a discussion paper exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer – hopefully making the position simpler for all industry stakeholders. No concrete announcements at this time, but any changes will likely impact the recruitment space.
VAT fraud in labour provision in the construction sector
Following a consultation into options for tackling fraud in construction labour supply chains, the government will introduce a VAT domestic reverse charge to prevent VAT losses. This will shift responsibility for paying VAT along the supply chain. Changes will have effect on and after 1 October 2019.
This is a response by the Government to perceived VAT underpayments in the construction industry and is likely to lead to increased administration burdens for those involved in construction supply chains, although the long lead in time should help mitigate this.
Reduction in VAT rate threshold
It had been reported that the Government were considering lowering the VAT registration threshold from the current level of £85k as a way of closing the tax gap. The Government has in fact now confirmed that this will not take place for at least the next two years.
This is good news for contractors operating at or below the current threshold, particularly where they may only have de-registered earlier this year as a result of the changes to the flat rate VAT percentages.
Investment in STEM
As a specialist recruitment firm with a focus on the engineering sector, it was positive to see the Government pledging support in bridging the skills gap that currently exists in STEM subjects:
- 8,000 new computer science teachers to be recruited at cost of £84m and new National Centre for Computing to be set up
- £27million to help improve maths teaching in 3,000 schools and a further £49million to help students resitting their GCSEs
- Financial investments for schools where students sit maths exams – expected total of £177m
- £30million invested in new digital learning courses, alongside plans to launch the world’s first national advisory body for artificial intelligence
Our Ops Director Adrian comments further on the investment in STEM, read more here.
Housing and infrastructure projects
- £44bn in overall government support for housing to meet target of building 300,000 new homes a year by the middle of the next decade
- National Productivity Investment Fund to be extended by a further £31bn
- £1.7bn city region transport fund, to be shared between six regions with elected mayors and other areas
- £10bn capital investment fund for hospitals up to 2022
- £500m support for 5G mobile networks, full fibre broadband and artificial intelligence
- £540m to support the growth of electric cars, including more charging points
- £34million will also go towards teaching construction skills
- No changes to previously announced budget commitments
Key rate changes
- Planed fall in CT to 17% in 2020 to go ahead as planned
- The government restated its commitment to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020. The immediate rate changes are below
- Personal allowance 17/18 = £11.5k
- 18/19 = £11.85k
- Higher rate (40%) threshold 17/18 = £45k
- 18/19 = £46.35k
- National Living Wage to increase to £7.83 per hour from April 2018
- Previously announced NIC changes to class 2 and class 4 rates are no longer to go ahead – however the Government is consulting more widely on the NIC regime and future change should be expected here