Phillip Hammond’s first and last Spring Budget was perhaps as expected – no real surprises and no shocks, but what, if any, effect did the announcements have on the self employed?
A lot of the measures that become effective for tax purposes this April were announced in the Autumn of 2016 or before. Some of the detail of these in terms of legislation is still unclear but the Finance Bill is due to be published on the 20th March and that will hopefully bring some clarity to the situation. Unfortunately we expect that HMRC will continue to make policy on the hoof and as such we are not anticipating a blinding flash of illumination but rather a dim candle shone into some very deep crevices.
The detailed tax notes are here:
The Red Book, here:
The tone of the speech was around fairness and how the tax system should not be a determining factor in business decisions. This is a continuation of policy in many ways but given that politicians very deliberately use the tax system to promote (or demote) particular issues, it is at best inconsistent.
The imposition of a higher Class 4 NIC charge will impact the self employed. It is however being phased in and could have been much worse. Changes to the tax free dividend allowance are also delayed and mitigated and again could have been worse.
Of more importance is perhaps the Taylor Report. This is looking at modern employment practices and reports in the summer. It is widely expected that one result will be to limit the circumstances in which a person might be self employed, or operate via a wholly owned company. The Chancellor today remarked that this choice, whilst available, should not be driven by tax considerations. We should therefore brace ourselves for action here in the Autumn.
In the meantime, we will see the new IR35 rules being operated in the public sector from April this year. The rules here are being applied over the objections of just about everybody impacted by them, employers, agencies, individuals and in our view will be seen in the private arena perhaps next April. These impose the burden of deciding whether you are a contractor or an employee on the end user client. The tools that HMRC has supplied almost invariably will decide that you are an employee. We have already seen a leaking of skills and experience away from the public sector as a result of these changes and given that budgets will not stretch to the additional cost of retaining a contractor as an employee, we expect this to continue.
We have also seen the start date of the “enablers” legislation announced. Advisers who create, advise or otherwise enable a tax avoidance scheme to be put in place and which is defeated, will face significant fines. Quite where the line is drawn remains unclear. In our view, however, anything that has steps that could be seen as having no commercial or practical effect, either to frustrate present tax charges – including the 2019 charge – or to position you for the future, will be liable to land an adviser with a heavy fine. We expect the incidence of such schemes being proposed will see a dramatic fall off in July.
In summary, as expected no dramatic changes, at this stage, but at the same time, no clarity on historic and retrospective activity which is causing significant uncertainty to those operating within the self employed market. WTT continues to seek this clarification through direct communication with HMRC and the Government.
If you would like to speak to one of the team regards existing enquiries with HMRC or to ensure compliant working arrangements for the future please do not hesitate to contact us at firstname.lastname@example.org.