Spring Statement 2018: Employment Tax
Employment tax was not a focus of the Chancellor’s speech, but measures announced show that he recognises the challenges the economy faces from the skills gap. The Chancellor acknowledged in his speech that the Apprenticeship Levy had got off to a rocky start and – reinforcing his commitment to having 3 million apprenticeships by 2020 – he allocated £80m to help fund small businesses who want to take on an apprentice. Other measures relating to skills included support for employers who need to get ready for T-Level work placements, and a consultation on more generous tax relief for self-funded training.
Currently the tax system allows employers to pay for training for their employees without giving the employee a tax liability, and it allows the self-employed to deduct the costs of keeping their existing skills up to date. However, an employee can normally claim no tax relief for the cost of paying for their own training and the self-employed are unable to claim a tax deduction for learning a new skill. The government is considering allowing more tax relief for those who fund their own training but is concerned to ensure that leisure activities cannot be packaged up as training.
A change to the rules in this area would help level the playing field between employer provided training and self-funded training. It would also remove an anomaly where some training expenses incurred by self-employed individuals are tax deductible but others, on new skills, are not. In order to reduce the risk of abuse, however, any new rules are likely to be complex and this could make them difficult to operate in practice.
Silence from the Chancellor on the review of employment status
In early February a consultation was launched to review the way in which individuals are categorised as either employed or self-employed. This consultation is not due to close until 1 June 2018 so there was little the Chancellor could say on this matter. A further consultation on extending the “off-payroll working in the public sector” rules to the private sector is also due at some point, but this was nowhere to be seen. If these rules are extended to the private sector, UK businesses would have to deduct tax under PAYE from payments made to certain companies they engage where, if the company was ignored, the person doing the work would have been treated as an employee.
The review of the employment status rules, and the potential for the off payroll working rules to be extended, are creating uncertainty for businesses that are heavily reliant on freelancers who could see costs increase by 17.3% as a result (taking into account national insurance, pensions and the apprenticeship levy). The Chancellor is now expected to make announcements in this area in the Autumn Budget, although it is hoped that any changes to these regimes will be delayed until April 2020 at the earliest.