At first glance, yesterday’s Autumn Budget seems positive for those working for themselves and in the gig economy.
Firstly, the tax-free Personal Allowance – the amount you earn before you have to start paying income tax – will rise by £650 to £12,500, meaning a basic rate taxpayer will pay £1,205 less tax in 2019-20 than they did in 2010-11.
The higher rate threshold follows a similar course, rising from £46,350 to £50,000 in April 2019.
But it may have been easily missed that hundreds of thousands of private-sector contractors could face higher tax and National Insurance (NI) bills from April 2020.
The Chancellor made light reference to the new rules, known as IR35, which would hit those working as though they were employed, but receiving the tax benefits of the self-employed.
Under current legislation, the off-payroll working rules are in place to ensure that where an individual would have been an employee if they were providing their services directly, they would pay the same tax and NI contributions as an employee.
These rules were “toughened up” for the public sector in April 2017, which transferred responsibility for deciding whether the rules apply and for deducting the appropriate taxes from the individual to the employer. This means that contractors are essentially deemed as employees unless they can prove otherwise and employers are forced to pay NI on payments to the contractor.
However, recent research has shown that around 71 per cent of public sector projects have been cancelled or delayed as a direct result of these new rules. Likewise, the NHS has seen around a quarter of its departments lose half of their flexible staff.
And earlier this year, the Institute of Chartered Accountants in England and Wales (ICAEW) warned that the private sector risks losing talent if proposed IR35 rules were to go ahead.
The Government said the private sector rules – which have been reported as the “biggest revenue-raising measure” in this year’s Budget – will not apply to the smallest 1.5 million businesses to alleviate the administrative burden of applying the rules.
It is expected that the factors taken into account when applying the rules will include hours of work, whether the firm controls what they do and how they do it and whether the firm provides equipment and overtime payments.
Commenting on the move to introduce off-payroll working rules to the private sector, the Association of Independent Professionals and the Self-Employed (IPSE) said the measure will “punish” the overwhelming majority of genuinely self-employed people and “heap a massive administrative burden onto businesses”.
