Budget 2018: IR35 and other taxes
Concern over tightening self-employed tax loophole
Ed Molyneux: ‘government is making an unfair assumption’
Businesses voiced concern about the move to further close a tax loophole where some self-employed are not what they say.
The IR35 tax law, brought into the public sector in April 2017, will be introduced to the private sector from April 2020, with the onus for deciding the employee’s tax status shifting from the self-employed themselves to any large businesses that employ them.
Trevor Cherry, national chairman of the Federation of Small Businesses, said: “Extension of the IR35 rule changes that have taken place in the public sector to the private sphere must be handled with caution.
“Careful consideration must be given over the next two years as to how this potentially damaging rollout should be managed.
“The flexibility of our workforce is one of our economy’s greatest strengths – one that should be protected.”
The Association of Independent Professionals and the Self-Employed (IPSE) chief executive Chris Bryce branded the Chancellor’s move as pushing the self-employed into a “holding pattern of despair”
Bryce said it could force many self-employed out of business and said it was a “smash-and-grab approach” by the Treasury.
Ed Molyneux, CEO of FreeAgent, which makes software for for freelancers and small businesses, said: “Once again, the government is making the unfair assumption that many of these people are ‘fake’ self employed workers who do not pay their fair share of tax, which is simply not the case.”
Neil Greene, Senior Consultant at HRC Recruitment, said: “The Chancellor stopped short of introducing IR35 reforms across the private sector today, limiting its application to large and medium-sized organisations.
“While the changes won’t come into effect until 2020, there now needs to be a conversation in the private sector about how it will accommodate the amended legislation – particularly among big, multinational companies which often employ large numbers of contractors in the UK.
“In some ways, they may be able to take their lead from how public sector organisations reacted to the reforms’ introduction years ago and take measures ahead of the 2020 deadline.”
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants: “It is right for the Chancellor to target those who take on work through a private company when they should actually be treated as employees and pay the appropriate national insurance contributions, both the employer and employee.
“However, opinion on whether the public sector IR35 rules are really working is sharply divided, and implementation from 2019 (alongside Brexit) is something that business groups have begged the Chancellor to avoid, so it’s disappointing to see this measure brought forward so soon.
“But these new rules should be accompanied by clear guidance and a pragmatic approach from HMRC so that those who are genuinely self-employed are not penalised and put off setting up in business. The UK urgently needs entrepreneurs and this should not be a roadblock to start-ups and existing businesses.”
VAT and Apprenticeship Levy
SMES welcomed Mr Hammond’s other moves for the sector, including the decision to freeze the £85,000 turnover threshold for VAT registration until 2022.
Mr Cherry at the FSB said it and other measures, including halving the SME share of the apprenticeship levy from 10% to 5% and refusing calls to abolish entrepreneurial tax relief, showed the Chancellor was “now listening to the small business community”.
Annual investment allowance and rates
There was also a welcome from the British Chambers of Commerce at the increase in the annual investment allowance to £1 million – one of the BCC’s core asks in its pre-judgement submissions to the Chancellor.
“This announcement will provide a major enticement for firms to invest and grow,” Suren Thiru, head of economics at the BCC, said.
The well-flagged support on business rates also drew plaudits from the SME sector.
The FSB said that small businesses on the high street that cannot get Small Business Rate Relief “will be delighted with the significant discount for the next two years, which on average will help these businesses to the tune of almost £2,000 each, but potentially up to about £16,000 off small businesses facing the biggest bills.
The changes apply to England and the Scottish government, which is responsible for business rates north of the border, will need to consider how to respond.