The Autumn Statement 2016

25th November 2016

On the 23rd November 2016, The Chancellor of the Exchequer, Philip Hammond presented his first Autumn Statement to Parliament.

Prior to the statement, Theresa May stated that the Chancellor will “lay out an agenda that is not just ambitious for business, but ambitious for Britain. He will do more to boost Britain’s long-term economic success. He will make sure Britain, outside of the EU, is the most attractive place for business to invest.”

You can find the full Autumn Statement here.

An Overview

IR35 Reform in the Public Sector

The IR35 reform within the public sector was a key announcement in the statement, as it will impact both contractors, agencies and end clients. For many months HMRC have been asking what changes they should make to IR35 to improve non-compliance within the public sector, and despite significant disagreement to the changes proposed by HMRC, the Government is still set to introduce these on 6 April 2017.

This means that from next tax year the organisation that pays a contractor’s limited company, most likely a public body sector or a recruitment agency will become solely responsible for assessing IR35 and deducting any resulting tax from payments made to the limited company.

It is also the intention to remove the 5% administrative expense allowance for PSCs.

This raises the question of whether a public sector client will pay all of its contractors as employees in order to avoid any penalties for non-compliance. If that were the scenario, contractors would be taxed as employees but potentially with limited employment rights, such as holidays, statutory rights or a pension.

The only positive note to mention is that the government is not yet extending these “off-payroll working rules” to contractors who work in the private sector.

VAT Flat Rate Scheme

From 1st April 2017, the government will introduce a new 16.5% rate for businesses with limited costs, such as many labour-only businesses.

technical note published by HMRC indicates that this will not be as simple as an increase in rate to trades that currently use the 14.5% rate. Instead, businesses will have to check how much they have spent on goods, compared to how much they make in sales, to see whether they have bought enough goods not to have to use the 16.5% rate.
Whilst this is almost certainly aimed at making the use of “Micro Umbrellas” unattractive, it is also likely to impact on many genuine PSCs.

Tax Rates and Allowances

The Government’s confirmed they shall reduce corporation tax rates in the UK to 17% by 2020. We welcome this commitment and also the on-going increases to the personal allowance, which will enable taxpayers to retain additional money whilst tax rates remain stable.

Class 2 NICs to be abolished

It was confirmed that from April 2018, Class 2 NICs will be abolished, with self-employed individuals qualifying for entitlement to State Pensions through Class 4 and voluntary Class 3 NICs.

As this is widely considered good news, it still remains to be seen whether it will ultimately cost more in the form of an increased rate of Class 4 NICs.

Employee Business Expenses

The government will publish a “call for evidence” at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not compensated by their employer. From first glance, this does not appear to be aimed at limited company contractors but it could potentially impact them.

Disguised Remuneration Schemes

In the 2016 Budget, changes were announced to tackle the use of disguised remuneration schemes by employers and employees, and now the government is enforcing this change as they believe it will raise some £650million — much more than the IR35 reforms. This will ensure that self-employed users of these schemes pay their fair share of tax and National Insurance.

Again though, whilst not seemingly targeted at limited company contractors, this has the potential to inadvertently impact limited company contractors and could be seen as an extension to the IR35 reform proposals.

HMRC Support for Emerging Insolvency Risks

HMRC will develop its ability to identify emerging insolvency risk, using external analytical expertise. HMRC will use this information to tailor its debt collection activity, improve customer service and provide support to struggling businesses. It’s been noted over the past years that HMRC have not been as proactive as they used to be in chasing limited companies which fail to pay their tax bills on time.

This threat of HMRC becoming more proactive in the future will encourage more limited company contractors to manage their company finances better and engage with their accountant if they get into financial difficulties in advance of HMRC debt collection activity commencing.

Future Autumn Statements to be abolished

The Chancellor announced that this year’s Autumn Statement will be the final one.

Starting next year, the UK will have a Budget in the autumn, while a Spring Statement will be issued from 2018, replacing the March Budget. This Spring Statement will be on a much smaller scale than the current Autumn Statement.

The announcement means that the Budget statement due in March next year will be the last spring Budget.

Other headlines include:

  • Corporation tax will fall to 17%, as planned
  • Personal allowance to increase to £11,500 in April, and £12,500 by the end of this Parliament
  • Higher rate allowance to increase to £50,000 by the end of this Parliament
  • From 2020 the personal allowance will rise in line with the Consumer Prices Index
  • £2.3bn Housing Infrastructure Fund for 100,000 new homes
  • £23bn national productivity investment fund, focusing on infrastructure
  • National Living Wage increase to £7.50 (from £7.20) from April 2017

Summary

Whilst Walker Smith are pleased to see that the government are set to introduce additional funds through the Small Business Bank and that the Corporation Tax is on track to fall to 17% by 2020, we still feel disappointed that by taking such action to tackle non-compliant working practices in the flexible labour market, genuine contractors will be financially impacted.

We hope going forward that the current Government begins to support contractors and understand that flexible working is now a way of life.

What does this all mean to you?

Please get in touch with us on +44 (0) 161 359 3235 to find out how your workers will be affected by this year’s Autumn Statement and how we can help you navigate through these changes.

We are always here to help.