The Budget - the main takeaways for employment specialists

Background

Contrary to many predictions, this was Philip’s Hammond’s stated ‘end to austerity’ Budget. Or, more precisely, ‘nearly end of austerity’…

There were some tax cuts and handouts in this Budget but also many areas left neglected giving opposition parties plenty to take issue with.

For employment lawyers, the main takeaways are:

Income tax: personal allowance and basic rate limit from 2019-20

Announcing that ‘I didn’t come into politics to put taxes up’ the Chancellor has increased personal allowance thresholds.

For 2019-2020 the personal allowance will rise to £12,500 and the basic rate limit will be increased to £37,500. The higher rate threshold will be increased to £50,000. This meets the government’s objective of increasing the higher rate threshold a year early.

The basic rate limit will be set out at £37,500 for 2020 to 2021 (the higher rate threshold will remain at £50,000 for the same period).

This measure will come into effect from 6 April 2019 and legislation will be introduced in the Finance Bill 2018-19 to implement these proposals. The thresholds will be increased in line with the Consumer Price Index thereafter.

National Living Wage and National Minimum Wage

The National Living Wage will increase to £8.21 in April 2019. The Low Pay Commission expects that this increase will benefit around 2.4 million workers.

Other NMW increases from April 2019 are:

  • rate for 21-24 year olds will increase from £7.38 to £7.70 per hour
  • rate for 18-20 year olds will increase from £5.90 to £6.15 per hour
  • rate for 16-17 year olds will increase from £4.20 to £4.35 per hour
  • rate for apprentices will increase from £3.70 to £3.90 per hour

The government has stated that it will set out the remit of the Low Pay Commission for the years beyond 2020.

National Insurance Contributions (NICs)

The government will not abolish Class 2 NICs during this Parliament.

IR35: Off-payroll working in the private sector

As discussed in this month's Emplaw Monthly the Chancellor moved to shift liability under IR35 to employers in the private sector.

To increase compliance with existing off-payroll working rules (otherwise known as IR35) the Budget confirms that from April 2020 businesses will become responsible for assessing an individual’s employment status and determining whether the rules apply.

This reform will not apply to the smallest 1.5 million businesses and, the surrounding information is at pains to state that it  does not apply to the self-employed or introduce a new tax. Its stated aim is to bring the private sector in line with the public sector.

HMRC has estimated that the cost of non-compliance with IR35 will reach £1.3 billion by 2023-24 which explains the Chancellor’s enthusiasm for ensuring the rules are enforced.

The off-payroll working rules only affect individuals who work like employees and through the medium of a company.

What does the reform mean?

From 6 April 2020, medium and large businesses must decide whether the IR35 rules apply to an engagement with individuals who provide their services through their own company. If they believe the rules apply, the business, agency or third party which pays the worker’s company must deduct income tax and employee NICs and pay employer NICs. Medium and large businesses will have until April 2020 to implement the changes.

HMRC has produced the Check Employment Status for Tax (CEST) service to help businesses determine whether the off-payroll working rules apply. The service can be accessed here: https://www.gov.uk/guidance/check-employment-status-for-tax. HMRC states that, provided a compliance check shows that the information provided is accurate, it will stand by the result given on completion of the test. However, it emphasises that it will not stand by results achieved through contrived arrangements designed to get a particular outcomefrom the service.

HMRC will provide support and guidance to medium and large organisations ahead of implementation of the reform.

What happens now?

There will be a further consultation on the detailed operation of the reform which will be published over the coming months, which will inform the draft Finance Bill legislation (to be published in the summer of 2019).

Apprenticeships

The government has announced a £695 million initiative to help small firms hire apprentices by reducing the apprenticeship levy from 10% to 5%.

Employment Allowance

To target the employment allowance to support smaller businesses the government will restrict access to employers with an employer NICs bill below £100,000 in their previous tax year. The EA provides businesses and charities with up to £3,000 off their employer NICs bill. Over 99% of micro-businesses and 93% of small businesses will still be eligible for the EA.