In the build-up to this Autumn Budget there was ongoing Brexit uncertainty and constant political rifts with the potential of leadership challenges. It was hailed as the budget that will end Austerity, pending IR35 changes also made this a budget that recruiters needed to carefully listen to.
Key takeaways from Philip Hammond’s 2018 Autumn Budget:
- IR35 changes will be extended to the private sector
- National living wage has been increased
- Tax: personal allowance has been increased
- Business rates cut by a third
- Introduction of a new digital services tax
- Wage growth in each of the next five years
- SME’s to pay less when training apprentices
- 800,000 more jobs by 2022
Here’s our summary from the Autumn Budget.
Self-employed workers set for higher taxes
One of the key talking points in the build-up was if Philip Hammond would extend the recent IR35 changes to the private sector. He did. It was confirmed that the changes to the private sector would happen in April 2020, one year after the UK had officially left the European Union.
The changes will only affect large and medium-sized organisations. However, no details have been released around what defines a small or medium firm. So until more clarity has been given, there will be a lot of uncertainty around the proposed changes. The reform will not apply to the smallest 1.5m business – who will still fall under the existing rules.
According to tax experts, IR35 can reduce a worker’s net income by up to 25 per cent, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.
The Treasury suggests the taxpayer could be missing out on £1.2bn in a year if the regulations weren’t extended to the private sector.
Chancellor of the Exchequer Philip Hammond said: “Last year we changed the way these rules are enforced in the public sector, but widespread non-compliance also exists in the private sector. Following our consultation, we will now apply the same changes to private sector organisations as well.
“We will apply the same changes to private sector organisations as well. After listening carefully to representations made during the consultation, we will delay the changes until April 2020. And apply them to large and medium-sized organisations.”
Andy Chamberlain, Deputy Director of Policy at IPSE: “The changes will heap cost and burden onto business, and restrict the UK’s greatest competitive advantage – it’s flexible labour market.”
Julian Sansum, Partner at PwC commented on the imposed changes – “there will be direct cost implications for businesses which decide their contractors fall within the IR35 rules, largely driven by employer NIC and Apprenticeship Levy totalling 14.3% which will be chargeable on contractor fees. In addition, businesses will need to make the necessary changes to their systems and processes, which could be complex.”
Increase in national living wage
The national living wage will be increased £7.83 to £8.21 from next April. This will benefit around 2.4 million workers working out to a £690 pay rise for the employee. With wage growth expected in each of the next five years.
800,000 more jobs by 2022
The economy has grown every year since 2010 and the unemployment rate is at its lowest for 40 years. The Office for Budget Responsibility (OBR) forecasts it is set to keep growing, with 800,000 more jobs by 2022.
As the industry copes with the UK leaving the European Union, there will be challenges ahead for the industry, however, the general feeling across the sector from REC, is one of positivity and optimism. So there should be plenty of vacancies for recruiters to help employers to fill over the coming years.
Personal tax allowance
The personal tax allowance has been increased, so the amount you earn before you have to start paying income tax– will increase by a further £650 in April 2019 to £12,500. This rise comes a year earlier than planned and will be maintained in 2020. This means a taxpayer will pay £1,205 less tax in 2019/2020 than in 2010/2011.
The higher tax bracket has also been increased from £46,350 to £50,000 in April 2019. This means that in 2019/2020, there will be nearly 1 million fewer higher rate taxpayers than in 2015/2016.
Digital services tax
From April 2020, large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users – this will only apply to companies with global revenues that exceed £500m. There has been some backlash to this new tax, with many companies suggesting it will reduce investment into UK companies. Could this lead to the big tech firms reducing the size of their UK workforce?