A round up of the key announcements from the Chancellor’s Budget that effect the Employment Law landscape
IR35
Unsurprisingly, it has been announced that the government will extend the IR35 reforms (which have already been implemented in the public sector) to the private sector. However, unlike with the public sector, there will be a slightly longer lead time as the changes will not take effect until 2020.
The IR35 rules are aimed at cracking down on tax avoidance by workers who supply their services to an organisation on a self-employed basis via an intermediary, but who would be an employee if the intermediary (normally a limited company) was not used. This arrangement can save considerable amounts in income tax and national insurance contributions.
The change means that medium to large private sector organisations will be obliged to check whether any contractors they use should be taxed in the same way as salaried workers (this being a responsibility which previously rested with the contractors themselves). This places a burden on employers who could face serious financial impact if workers are found to be “disguised employees”.
Tax experts say the new rules could reduce a worker’s net income by as much as 25% due to the extra income tax and National Insurance contributions they will be obliged to pay under IR35.
The announcement has received criticism with Vivek Madlani, co-founder of Multiply, stating that the changes “will send shockwaves through the self-employed community”.
Chris Bryce, the Chief Executive for the Association of Independent Professionals and the Self Employed has said that the changes to IR35; "will punish the overwhelming majority of genuinely self-employed people, heap a massive administrative burden onto businesses at a time of Brexit uncertainty, and also undermine one of the UK's most dynamic and productive sectors."
The real impact of the extension to the reforms remains to be seen.
Income Tax
The following income tax rates have been announced and will apply from April 2019:
- The personal allowance will increase to £12,500 (currently £11,850)
- The higher rate tax threshold has increased to £50,000 (currently £46,350)
- Corporation tax will be cut to 17% from April 2020 (currently 19%)
- The Annual Investment Allowance will increase to £1m (formally £200,000.)
These changes aim to increase the disposable income of the UK workforce with the objective of increasing spending and stimulating economic growth. The changes mean that basic rate tax payers will get an extra £130 a year, while those paying the higher rate of tax could get up to £860 a year.
National Living Wage & National Minimum Wage
The government will increase the rates of the National Living Wage by 5% from £7.83 to £8.21. This change applies to workers who are 25 and over and is estimated to benefit around 2.4 million people.
The following National Minimum Wage rates will also apply from April 2019:
- for 21 to 24 year olds the rate will increase by 4.3% from £7.38 to £7.70 per hour
- for 18 to 20 year olds the rate will increase by 4.2% from £5.90 to £6.15 per hour
- for 16 to 17 year olds the rate will increase by 3.6% from £4.20 to £4.35 per hour
- the rate for apprentices will increase by 5.4% from £3.70 to £3.90 per hour
Employers should remember that it is a criminal offence not to pay someone the National Minimum Wage or National Living Wage. Be aware that these changes are up and coming as any workers that are paid below the correct minimum will be owed arrears which are payable immediately upon discovery.
Employment Allowance Reform
The Employment Allowance (EA) was created to support growth in businesses and charities by cutting the cost of employment. Those paying employer’s Class 1 National Insurance Contributions can claim the allowance of up to £3,000 to set off against their Employer NICs bill.
The changes announced to the EA in the Budget aim to streamline the allowance to support small businesses only. To do this, from April 2020 the government will restrict access to the EA to employers with Employer NICs bills below £100,000 in their previous tax year.
It is predicted that over 99% of micro-businesses and 93% of small businesses will still be eligible for the EA but of course those with NIC bills of over £100,000 will now miss out. The government’s aim is to encourage emerging start-ups and other small businesses to increase their head count by using the EA to ensure that the obligation to pay employer NICs is not a barrier to growth.
If you need advice or any further information on how the Autumn budget will affect your business and your workforce, please do not hesitate to contact a member of our Employment team.