Autumn Statement November 2016
Recruitment Industry and Accounting Provider Soundbites
The below summary includes direct ‘lifts’ from the Chancellor’s Announcement (the red boxes) for ease of reference. The My Digital Accounts Comment is an initial view and is subject to change following more detailed consideration and additional information such as Guidance Notes and the Draft Legislation which will be published in the next few weeks.
Personal Service Companies (PSCs)
1. Off Payroll Engagement in the Public Sector (‘IR35’)
As widely predicted, those entities paying limited companies in the public sector will now be liable for any PAYE or NICs which is not deducted before payment is made to a Limited Company where the worker is operating “inside IR35”. Draft legislation is not yet published.
My Digital Accounts Comment: This will be the biggest change in the temporary labour market since IR35. Recruitment Agencies will not be comfortable taking the risk of paying a limited company ‘gross’ and the end users are unlikely to want to help with the assessment. This may well lead to the establishment of a new type of “IR35 expert” intermediary who conducts the IR35 assessment and immunises the Agency from any potential liability.
2. Tackling inappropriate use of the Flat Rate VAT Scheme
A new flat rate VAT rate of 16.5% is introduced from 1st April 2017 for business with “limited costs”, such as labour-only businesses. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either less than 2% of their VAT inclusive turnover in a prescribed accounting period or greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year.
My Digital Accounts Comment: Draft secondary legislation will be published on 5th December 2016 so we need to wait before commenting further. It seems this ruling may have been introduced to combat the rise of the “micro-umbrella” which has emerged since the Travel and Subsistence and Employment Allowance rule changes in April 2017.
3. £30,000 tax free redundancy payments remain
From April 2018, termination payments over £30,000 which are subject to Income Tax will also be subject to employer National Insurance Contributions
My Digital Accounts Comment: A sensible clarification of the rules
4. Employer’s National Insurance on Self Employed Payments?
The Chancellor stated that the “growth of self-employment erodes tax revenues”. The announcement implies that Employer’s NICs may applied to certain payments to the self-employed and that payments without NICs may even be disallowed for Corporation Tax purposes.
My Digital Accounts Comment: The detail on this legislation change is yet to come but the threat that certain payments may not be eligible for Corporation Tax relief (if Employer’s NICs have not been applied) is a very aggressive proposal. Clearly patience is running thin with those who still operate “gross payment” arrangements
Umbrella Companies and Recruitment Agencies
5.Salary Sacrifice arrangements to be ceased
The tax and Employer NICs advantages of salary sacrifice schemes will cease, except for pensions, childcare, Cycle to Work and ultra-low emission cars. Arrangements in place at April 2017 will remain until April 2018 and arrangements for cars, accommodation and school fees will be remain until April 2021.
My Digital Accounts Comment: This is the continuation of a policy designed to ensure that all payments to employees fall within the income tax and NICs legislation. Salary sacrifice schemes which have been popular for the last 2 decades will no longer be viable
6.National Minimum Wage
The NMW will increase to an annual equivalent of £13,500, continuing it’s ‘inflation busting rise’ since 2010
My Digital Accounts Comment: This move will put further pressure on the viability of travel and subsistence arrangements
Tax and National Insurance Thresholds
7.Income Tax and National Insurance Thresholds Increased
In April 2017, the tax free personal allowance will be rise to £11,500 and the higher rate threshold will rise to £45,000 From April 2017, employee and employer (secondary) National Insurance Contributions will be aligned so the threshold for both will be £157 per week
8.Small Entrepreneurs can earn up to £1,000 with no tax implications
Some good news in the Autumn Statement for budding entrepreneurs or those earning money from a hobby. As long as the income (presumably the net income), remains below £1,000, there is no need to report the income.
My Digital Accounts Comment: A small but interesting concession indicating the government’s pragmatic approach to small micro businesses
9.The Digital Tax Accounts Initiative continues with Quarterly Reporting on the horizon…
There will obviously be a need for accounting software providers to engage with government on some significant changes which are planned for the longer term. As per the announcement below, it is suggested that tax payers will be more engaged with HMRC and there is the distinct possibility that tax payments will be made earlier (corporation tax is currently not due until 9 months after a company’s year end for example)
My Digital Accounts Comment: The Online world has arrived and the role of the accountant is changing in the modern era. Embracing technology and the use of Apps and online software will be essential HMRC and accountant tools in the very near future.
The intent from HMRC in this area can be accurately predicted in that the above initiative is likely to be coupled with Quarterly reporting of landlord and limited company incomes during the 2017/18 fiscal year