Autumn Statement 2016: the other key announcements
Any positives in today’s Autumn Statement were overshadowed by the confirmation that seriously damaging changes to IR35 in the public sector will go ahead next year. The implications are extremely significant both for public and private sector contractors. Here we run through major announcements from today's speech.
From April 2017, public sector organisations or the agency (where one exists in the chain) will determine the IR35 status of engagements and then, if caught, apply taxes as they would for their employees, through the RTI system.
IPSE believes the changes will result in contractors being unfairly taxed more than they should be. These businesses will turn their back on public sector contracts and this will mean projects will be under resourced and vital public services will not be delivered. It is a disastrous measure and the Government is making a big mistake.
Our research has shown it will force over half of contractors out of the public sector while the rest increase their pay rate. So public sector organisations will not be able to attract the talent needed to get the work done or they will have to pay more to get it. It is likely they will turn to the big four consultancies to fill the void and then the costs will soar.
To add insult to injury, the Government has decided to abolish the five per cent deduction for those who are operating IR35 in the public sector.
As previously announced, the Chancellor confirmed that corporation tax will fall to 17 per cent by 2020. He also reiterated that the personal allowance will increase to £11,500 in April 2017 and £12,500 by the end of this Parliament in 2020. The Personal Allowance will continue to rise with inflation through the 2020s.This will be a welcome boost for contractors.
Other news unlikely to be welcomed by the self-employed is a new 16.5% Flat Rate VAT rate from 1 April 2017. The Flat Rate scheme is designed to simplify VAT calculations and record keeping, but this change could result in more self-employed opting out.
Mr Hammond also announced that "the Government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change". IPSE will be seeking more detail on the scope of this review, but we fear this might seek to penalise the self-employed given the Chancellor highlighted his concerns around the cost to the Exchequer of self-employed incorporation.
Sole traders will have been keen for further detail on Government’s Making Tax Digital plans. However the Government will wait until January 2017 to respond to the recent consultations and announce provisions to implement the changes.
Mr Hammond missed the opportunity to make much needed changes to the Lifetime ISA (LISA) and support the self-employed in saving for their retirement.
Available from April 2017, this new savings vehicle will allow anyone between the ages of 18 and 40 to deposit £4,000 a year, up until they are 50, and receive a 25 per cent government bonus on top of their savings when withdrawn tax-free at 60. However, ONS data shows the average age of a self-employed person is 42, and 46 per cent of IPSE survey respondents said they are ineligible for the LISA because of their age. The Chancellor should think again and extend the age eligibility criteria for the LISA so freelancers over 40 are able to save effectively for their retirement.
Oil & gas
Many contractors work in the UK’s North Sea oil and gas industry, which is dependent on their flexible expertise to deliver important projects. The Autumn Statement outlines the government’s ambition for a "stable tax regime that maximises economic recovery from the North Sea".
They hope their Driving Investment plan will help support the sector – this will involve simplifying the reporting process and reducing the administrative costs of the Petroleum Revenue Tax for oil and gas companies.
Highlighting the need for the UK to tackle its lagging productivity and have "world class digital infrastructure", the Chancellor pledged £23bn towards a National Productivity Investment Fund. This will include:
- More than £1bn for digital infrastructure and 100% business rates relief on new fibre infrastructure
- £1.4bn to deliver 40,000 extra affordable homes
- £110m for East West Rail and commitment to deliver Oxford to Cambridge Expressway
IPSE welcomes the Government’s commitment to investing in crucial infrastructure over the coming years. The self-employed need better road and rail links if they are to fulfil their potential and support the UK economy growing. We hope Government will use the opportunity of new rail infrastructure to ensure better WiFi is available for rail customers to allow them to work on the move.
Similarly there needs to be joined-up thinking when planning the housebuilding drive – Government needs to work with housing developers to ensure fibre optic broadband is in place as standard. This should go hand-in-hand with government’s plans to roll-out broadband to more isolated areas through its Universal Service Obligation.
Contractors will benefit from the Chancellor’s confirmation that fuel duty will again be frozen, for the seventh year in a row. Those in business on their own account will often need to travel frequently been client sites, so this decision will be a real boost.
After coming under criticism for the way Universal Credit will affect low-earners, the Government today proposed a minor reform to its operation. This would see claimants losing 63 pence for every extra £1 earned above a certain threshold, rather than 65 pence as was previously the case.
Government needs to ensure that any tweaks to Universal Credit carefully consider self-employed sole traders, as their income tends to be much more volatile than employees.