More IR35 changes in the Budget?

More IR35 changes in the Budget?

Brian Palmer, a tax policy advisor for AAT, considers changes that could be made to IR35, digital tax, and National Insurance next week

Brexit has had a knock-on effect in all areas of UK industry since the referendum. As things have failed to stabilise through a certified deal with Europe, it is very hard for anyone to really predict the ever-changing landscape, let alone what will be covered in the Autumn Budget.

Several firms who have offered their predictions and pleas to Accountancy Age have established that it is very unlikely that changes made in the Budget will be drastic – most will be focused on the short-term.

However, according to the Association of Accounting Technicians (AAT), there are clues that can be pieced together from the likes of the Conservative Party Conference, ministerial speeches, and the media.

The first of these clues is the fact that the Budget may include further changes to IR35 off-payroll working. This is “a legislation designed to combat tax avoidance by workers supplying services to clients through an intermediary such as a limited company,” Brian Palmer, tax policy advisor at AAT, explained.

He continued: “These workers would normally be classed as an employee if the intermediary wasn’t used. There are concerns from many quarters that new rules around determining responsibility for IR35 status will now be extended to companies in the private sector.”

AAT conducted their own consultation into this topic, and they revealed that there is no evidence that the IR35 rules that were revised and introduced in April 2017 are working. Therefore, it makes little sense for further changes to be introduced into the private sector until evidence can be provided showing the model has been a success in the original areas in which it has been applied.

“Even then, it should only be introduced after allowing businesses sufficient time to get ready for such a far-reaching change,” Palmer added. “If an extension was announced now, with a 2019 implementation date, it would leave insufficient time for businesses to adequately prepare, or for software companies to build the required handling changes into their payroll/contractor payment processing products. Therefore, our message to the government would be not to rush this in.”

At the Conservative Party Conference a few weeks ago, the chancellor revealed his intentions to implement a new ‘digital services tax’.

“This is an attempt to measure the value companies such as Facebook and Google generate from UK users looking at adverts on their platforms, and then introducing a tax to be paid on that value,” Palmer explained.

Whilst this is an interesting concept, Palmer has emphasised that AAT, just as CBI and others before them, will not support digital taxation at this stage, due to it being “a rather blunt solution.”

Although the whole idea of the tax is to create a more “level playing field for bricks-and-mortar businesses”, this heavy-handed approach may not have the impact Hammond has envisioned, Palmer has said.

“We believe this would be tackled better through a significant review of business rates,” he continued. “Companies like John Lewis, for example, have a huge high street presence, yet, at the same time, 41% of their sales are online, so they would understandably be wary of a new digital tax.

“Reform to business rates is undoubtedly desperately needed and, whilst discussion of the best way to achieve that takes place, we believe that the government should freeze any increases in the current business rates regime.”

AAT’s final prediction for the Budget focuses on National Insurance, which is “a thorny area for some, with the self-employed paying less National Insurance contributions than those in employment,” Palmer said.

“Many pundits supported Philip Hammond’s ill-fated proposed 1% increase in the rate of class four NI last year, but the post-Brexit outcry led to him making an immediate U-turn. With the current various economic uncertainties, it is unlikely that any further attempt at change will come in this Budget but, at some point, something is going to have to give.”

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