Image credit: REUTERS/Phil Noble
The dreaded extension of the off-payroll working rules to the private sector was confirmed, but the government’s announcement that the legislation will apply only from April 2020 offers at least a temporary reprieve. The proposed restriction of the new rules to large and medium-sized businesses, with the IR35 rules continuing to apply to small business, will come as a relief to many. Nonetheless, the anticipated revenue from these changes is remarkable and the impact of the reforms is likely to be significant.
(For Practical Law commentary on this measure, see Legal update, Autumn 2018 Budget: key business tax measures: Off-payroll extended to private sector from April 2020).
Read the reaction to the Autumn 2018 Budget from industry leading tax practitioners:
Mark Braude, TLT LLP
This was a balanced budget of substance and, in places, surprises.
The rumoured Digital Services Tax has emerged, but the fact that it will only apply to businesses with global revenues exceeding £500m is welcome news for SMEs. As such, it appears that it will be a targeted and proportionate measure aimed primarily at MNEs and the 2 percent rate is modest.
Arguably the most significant announcement is the proposed changes to IR35, with the recent changes to public sector works to be extended to the private sector for large and medium sized businesses. This will have a significant impact on many businesses, although the proposed commencement date of 2020 gives businesses plenty of time to prepare for these changes.
It was clear from the Chancellor’s speech that he had considered abolishing Entrepreneurs’ Relief and had felt the need to take some measures to prevent the relief being abused. However, the proposed changes do not generally look too troublesome. The extension of the 12 month holding period to 24 months feels a little arbitrary, but should not unduly prejudice those business owners and shareholders with substantive and long standing stakes in the business. The change to the definition of ’personal company’ may prove more challenging and adds another layer of complexity to the rules, but will at least put an end to certain types of planning and abuse of the relief.
Elsewhere, there were sensible and welcome changes, including the alignment of the intangible assets regime with the capital gains tax regime on degrouping and a targeted relief for goodwill in the acquisition of businesses with eligible intellectual property. Overall, this was a targeted and well thought out budget which resolved some discrepancies in the legislation and closed down types of tax avoidance, but also provided new tax breaks and adjustments to rates.
Darren Oswick, Simmons & Simmons
Despite the Chancellor’s best efforts to avoid this late October Budget being tainted by its association with Halloween, ultimately, this was a Budget overshadowed by the spectre of Brexit. The Chancellor has made it abundantly clear that he regards it as essential that the UK avoids the nightmare of a ‘no-deal’ Brexit and his predictions for the public finances are highly dependent on a smooth transition. In the meantime, this potentially ‘phantom’ budget holds out the prospect of better times ahead should the UK avoid being haunted by a disorderly Brexit in the years to come.
The announcement that the widely-anticipated changes to the private sector off-payroll working rules (known as IR35) will not come into effect until April 2020 and will only apply to large and medium-sized businesses, will be widely welcomed. There had been concern that this reform would come into effect in April 2019, with businesses understandably anxious about having insufficient time to prepare. It is important that the HMRC continues to work with stakeholders to further improve the Check Employment Status for Tax tool (which has been the subject of criticism) and guidance before the reform comes into effect. The HMRC has also stated that it will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years — it will be interesting to see how this plays out in high value cases.
Read more on the Autumn 2018 Budget
Further analysis on the key areas:
- Finance and Financial Services
- Digital Services Tax
- IP, Media and R&D
- Property, Energy and Environment
- Other business measures
