Budget 2018: Employment Tax
The big news for employers is that the off-payroll working rules are now confirmed as being extended to the private sector from April 2020 which means that medium and large employers will now need to completely rethink how they engage with limited company contractors with little time to do so given that the detailed consultation on this is not expected until well into 2019. Smaller employers escape these rules for now and will also get to keep their annual employment allowance, which will no longer be available to larger employers. Other tweaks to the employment tax regime were relatively minor.
Off-payroll working in the private sector
The off-payroll working rules in the public sector were introduced from April 2017. These rules apply to individuals who provide their services through a limited company rather than engaging directly, where their working patterns are essentially the same as an employee. Until now, they have only applied where the services were for a public body such as the NHS, BBC or a local authority.
Essentially, where the worker is providing their services in the same way as an employee would, albeit through a company, the person paying them for their services must account for PAYE and National Insurance Contributions. The Budget confirmed that these measures are to be extended to the private sector with effect from 6 April 2020. There are some relaxations to this reform including the smallest of businesses not having to apply these measures at all. This is expected to mean businesses with fewer than 50 employees, although a further consultation on the detailed operation is to follow.
Although this will be a relief to smaller businesses, contractors will still need to consider the existing IR35 rules when working for small businesses, but will also have to work with the new off-payroll rules when engaged by larger businesses. This makes the new regime more complex than if it applied to all companies.
While this reform was not unexpected, it will not be welcomed by the contractor community, which has no employment law protections but will be expected to pay the same employment taxes as those with them.
Employment allowance reform
The Employment Allowance was introduced to help businesses with their employer National Insurance Contributions bill. However, at £3,000 a year it makes little difference to larger employers. With effect from April 2020, employers with an employers’ National Insurance Contributions bill of £100,000 or above in the previous tax year will be ineligible for the Employment Allowance.
This measure is more limited than might have been expected and most small employers will still be able to benefit by saving up to £3,000 off their National Insurance bill each year.
Taxation of self-funded work-related training
In the Autumn Budget 2017, it was announced that the government would consult on how tax relief for work-related training could be extended to that paid for by the employee (rather than the employer) and the self-employed. The government has decided that extending the tax relief available would not result in incentivising workers to learn new skills, so the there will be no changes to tax relief for work-related training at this time.
This is disappointing, although new measures are to be introduced such as the National Retraining Scheme to help workers develop new skills.
NI contributions on termination payments
Class 1A National Insurance contributions were expected to be due on all termination payments in excess of £30,000 with effect from 6 April 2019. The Budget has announced a postponement to this measure and it is now expected to be introduced on 6 April 2020 instead.
The Budget also announced that Class 2 National Insurance contributions will not be abolished during this Parliament as originally announced. These are payable only by those workers who are self-employed.
The introduction of Class 1A National Insurance contributions on termination payments was originally to have been on 6 April 2018. No reason for the continued delay has been given but it is to be welcomed.
Class 2 National Insurance contributions ensure that the self-employed remain qualified for certain social security benefits that might otherwise be lost. Their abolition could have created hardship for the lower paid self-employed earners