IR35, crackdown on the ‘bogus’ self-employed
Philip Hammond is expected to announce a further crackdown on people claiming self-employed status in the Budget, targeting those who’ve set up private companies in order to pay lower National Insurance contributions.
The use of contractors has become uncertain in recent years, with many contractors choosing to provide services by setting up their own limited companies. While most organisations turn to contractors for consultancy services, the government believes that up to a third of current contractors are actually being engaged and managed on an almost permanent basis.
Victoria Roythorne, head of communications and compliance at Outsource UK, said that regardless of the chancellor’s announcement on IR35, employers must make sure they are up to date with self-employment legislation.
“Whether or not the chancellor announces the implementation of IR35 in the upcoming Budget, the introduction of this legislation is highly likely following its enactment in the public sector. Whether they like it or not, firms need to get to grips with HMRC IR35 changes and work with recruiters to understand whether contractors fall in or out of scope. If they don’t they risk financial and reputational damage,” she said.
“Talent is what drives a business forward, and contingent workers are a key part of the mix. It’s worth noting that contractors add significant value to the economy, along with invaluable expertise to businesses that require specialist input to complete projects. As we move towards 29 October and businesses gear up for legislative changes that may affect them, IR35 should be a key consideration otherwise they risk being caught out.”
Pensions relief cuts
The Autumn Budget is expected to bring a cut to the annual allowance, reducing the tax relief available to savers.
The most likely change would be a reduction of the annual allowance – a limit on the amount that can be contributed to pensions each year tax-free – from the current £40,000 to £35,000 or £30,000. This would mean more than 100,000 higher earners would lose tax relief of up to £4,000 each.
Steven Cameron, pensions director at Aegon, explained why this is a likely announcement in Monday's budget. "Both pensions and ISAs offer savers important tax incentives including tax-free investment growth,” he said. "However, unlike ISAs the incentives for pensions are added ‘upfront', costing the government money today through paying a ‘tax-relief’ bonus on contributions. Income tax is due on three-quarters of income once taken from pensions but this may be decades into the future, far beyond the chancellor’s budgeting time horizon."
Cameron called on the chancellor to balance any reduction in the pensions ‘annual allowance’ with a corresponding increase in the annual ISA contribution allowance, so that the maximum people could save into a tax-incentivised savings vehicle would remain unchanged at £60,000.
“Now more than ever, people need to take personal responsibility for their financial futures so it’s important the government incentivises this. We hope the chancellor resists any further reduction in how much people can save each year into a pension, particularly given reports of an improvement in public finance projections,” he said.
Further training and skills for young people
While a radical shake-up of the apprenticeship levy was already announced and largely welcomed at the Conservative party conference, educators and training providers are hoping for further policy to boost young people’s skills.
Sheila Flavell, chair of the Institute of Coding's industry advisory board, called for a greater focus on STEM courses. “The chancellor has a track record of delivering eye-catching tech initiatives in his financial statements, and businesses will be hoping that this Budget is no different. There needs to be further detail on the government’s strategy to drive engagement with STEM courses, as well as fresh proposals to improve the digital capabilities of existing workforces," she said.
Training in technology is vital for the future of businesses, she added. “Whether the subject is data science or cyber security, these skills are critical for driving companies forward and key to this is collaboration between universities and businesses to ensure courses reflect the growing needs of employers. This approach will help widen access to high-quality education to a more diverse range of people, something that is good for industry and the wider economy.”
The chancellor has said that he wants to crack down on technology giants such as Amazon and Google, which pay relatively low rates of tax by shifting profits across jurisdictions. While Hammond is under pressure to meet the demand of £20 billion of spending on the NHS by the end of the parliament, there have been doubts over whether increasing taxes for large firms would enable him to do so.
Increasing tax could also complicate the tax system for small businesses, warned Jonathan Richards, CEO and founder of breatheHR.
"This may help boost much-needed funding to the NHS, but will make an already complicated tax system even more so for struggling small business owners. What's more, we are at a crucial period where the UK needs to focus on growth and this approach will hit small high-street retailers who also trade online doubly hard if they receive no relief in business rates.
"In addition, scrapping tax relief for this sector could put budding entrepreneurs off starting their own company or make investors reluctant to back young businesses, just when the economy needs them the most. The chancellor must restore faith in small business owners by offering support and investment, not harming our SME economic engine."