Earlier this week The Chancellor unveiled his plans for the UK economy over the next 12 months, in his eagerly anticipated Budget speech.
Carrying the slogan ‘Fit for the Future’, many viewed this Budget as make or break for Philip Hammond, whose own future has been hanging in the balance following the disaster of the 2016 Budget, which will not be remembered fondly by the self-employed.
Another all out attack on the independent workforce would not just have risked his relationship with the UK’s 4.8m self-employed, but potentially destroyed it. So this must have influenced his and the Government’s economic plans for the year ahead.
Mr Hammond did not pull a rabbit from his hat this time, and in many respects kept changes which impact freelancers and contractors to a minimum.
IR35 consultation announced.
Much to the relief of contractors and the extended business community, anticipated reform to private sector IR35 was not announced.
Speculation has been mounting that the Government plan to extend changes to the off-payroll working rules from the public sector into the private sector. This would see 5.5m private sector companies and recruitment agencies handed the responsibility of setting contractors' employment status – a move which would see them made liable for any missing tax should they be deemed by HMRC to have made an inaccurate decision.
The Government did announce plans to hold an IR35 consultation early next year, in the 'Red Book' released immediately after The Chancellor’s speech. In many respects, this was a victory for contractors who will be able to continue setting their own employment and IR35 status in the private sector for the short term at least.
IPSE’s Chris Bryce welcomed the news.
“Instead of extending the changes now, Mr Hammond paid heed to IPSE’s warnings and pledged to consult on extending the changes to the public sector and ‘draw on the experience of the public-sector reforms, including through external research’. IPSE stands ready to join the consultation to ensure it takes into account the needs of the legitimately self-employed and accurately reflects the heavy damage the changes to IR35 have caused to the public sector.”
Any move to roll out reform to the private sector as early as next year would have been unwise. However, that the Government are reviewing IR35 shouldn’t gloss over what is a short-sighted approach to tackling tax avoidance, as Qdos Contractor CEO Seb Maley explained.
“A consultation doesn’t detract from the bigger issue, and that is this Government is failing to take care of the independent workforce with regards to IR35. We do not believe reform is a fair, nor necessary way to stamp out what the Government claims to be widespread tax avoidance from contractors.”
Employment status review planned.
In addition to an IR35 consultation, a review of employment status rules has been penciled in for 2018. Complex employment legislation has made it difficult for all parties involved in setting IR35 status to accurately differentiate between a contractor, an employee and more recently a gig economy worker.
High profile Uber and Deliveroo cases has shone a particularly public light on the failings of current employment status rules, emphasising the need for an in-depth review.
VAT threshold to remain for two years.
Rumours were also circulating with regards to a change to the VAT threshold. However, The Chancellor stood firm and revealed the Government will keep the VAT threshold for the next two years. This means freelancers and contractors do not have to register or pay VAT until they turnover £85,000 or above.
The thinking behind this is to ensure that only the higher earners will need to register, pay and charge VAT on transactions.
Crackdown on big business tax avoidance.
95% of freelancers and contractors recently stated they expect the Government to do more with regards to the tax avoidance of big businesses. With recent outrage over the Paradise Papers, any move to target large international corporations from avoiding paying UK tax will be welcomed by independent workers. That said, in the past promises to do so have not materialised.
Personal allowance and higher tax threshold increase.
The amount of money anyone – employed or self-employed – can earn without paying tax will rise by £350 to £11,850. In addition to this, the higher rate tax threshold will as also increase from £45,000 to £46,350.
While widely welcomed by freelancers and contractors, they would have no doubt preferred for the Government to re-examine incoming cuts to tax-free dividends, which were slashed from £5,000 to £2000 in last year’s Budget.
£500m pledged to 5g, fibre broadband and AI.
Remote and independent workers all across the UK are in desperate need of better connectivity, from mobile coverage through to super-fast broadband. That the Government recognise this, and also plan to improve internet speeds and connectivity on various train lines is an important step in the right direction.
Making tax digital (MTD) unchanged.
The 'Red Book' indicated that we remain on course for the full roll out of Making Tax Digital for April 2019, the date on which every UK business will be required to submit their taxes online and in real-time.
In conclusion, this Budget was a much needed improvement on last year’s, but only because there were no huge negatives for freelancers and contractors. And while we should be pleased IR35 reform has not been extended to the private sector, there's nothing to suggest that the Government is not planning to extend changes in the future.
Are you feeling positive about the Budget?