Philip Hammond yesterday delivered his budget outlining what we can expect from April 2019 and beyond, and, as widely anticipated, plans to reform IR35 rules for those working ‘off-payroll’ in the private sector have been announced.
What we now know
With concerns around the recent reform in the public sector being voiced, namely, the difficulties in reaching an appropriate status decision based on outdated employment case law; calls were made for a comprehensive review on its impact on the public sector before the legislative change is applied to the private sector. This, at least, appears to have been heeded, with the implementation of the private sector changes delayed until April 2020.
The unreliability of HMRC’s CEST tool
Dependability of the CEST tool has been widely questioned, particularly in recent weeks, however HMRC has vowed to continue to work with stakeholders to identify improvements and provide broader guidance to ensure it meets the needs of the private sector. Testing is to be undertaken with operational and legal experts, as well as those that will be reliant upon its results.
Assessment of IR35 status
While the responsibility for assessment of IR35 will fall to hirers from April 2020, the UK’s smallest 1.5 million businesses are to receive a reprieve, with only engagers who are medium and large businesses needing to comply with this change.
Good news for some, however this could potentially add an additional layer of complexity with the decision on when to apply existing IR35 rules and when to consider the new off-payroll legislation.
Where it is determined that the off-payroll rules apply, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee NICs, and pay employer NICs.
Further outcomes of the consultation
HMRC has confirmed that the reform will not be retrospective and state that efforts will be focussed on ensuring businesses comply with the reform, rather than on historic cases. Targeted campaigns will also not be carried out when individuals start paying employment taxes under IR35 for the first time. It should also be noted that businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.
Other key points from the Chancellor’s Budget announcement include:
- Personal Allowance and Higher Rate Threshold to be increased a year earlier than expected, to £12,500 and £50,000 respectively
- VAT Registration Threshold to remain unchanged at £85,000 for a further 2 years
- Corporation Tax cut to 17% from April 2020 set to remain
- £10m Entrepreneurs Relief Allowance holding period increased from 12 months to 2 years
- Living Wage to rise by 4.39%, from £7.83 to £8.21
Next steps for IR35 Reform
A further consultation on the detailed operation of the IR35 reform is set to be published in the coming months, the results of which will inform the draft Finance Bill legislation, expected to be published in summer 2019.
For more information and guidance on IR35, check out our guide IR35 – all you need to know or talk to us on 01253 600 150.