In a welcome but late move, Her Majesty's Revenue and Customs (HMRC) has confirmed that the imminent IR35 reform will apply only to supplies of labour provided on or after 6 April 2020. With less than two months to go before the change takes effect, many businesses will consider HMRC's announcement and its recently issued detailed guidance too little too late as they grapple with the significant administrative burden and cost implications of the reform.
The proposed IR35 reform represents the biggest change to employment tax for decades. Until now, businesses have been able to engage contractors using personal services companies (or other intermediaries) without having to give much thought to the individual contractor's status for tax purposes. The proposed changes mean that businesses must review how they engage with contractors ahead of April 2020.
The government is committed to cracking down on disguised employment. In order to achieve this, the IR35 rules will change from April 2020. The IR35 rules apply where contractors personally provide services via an intermediary. However, if the contractor is directly engaged, they would be considered an employee or office holder for tax purposes. The changes will also apply to more complex labour chains, so an early understanding of the labour supply chain is critical.
The chancellor recently confirmed that with effect from 6 April 2020, businesses in the private sector which engage 'contractors' (ie, individuals who supply their services via their own company or partnership (the intermediary)) will be responsible for determining whether the IR35 rules apply. If the business considers that IR35 applies, the person paying the intermediary will be responsible for operating pay-as-you-earn and national insurance contributions on the fees that it pays to the intermediary.
The government's plan to make termination payments in excess of £30,000 subject to employer national insurance contributions has been delayed for a second time and will now take effect from April 2020. Initially this change was expected to be introduced from April 2018; however, the Autumn 2017 Budget announced that it would take effect from April 2019. The further delay is welcome news for employers as it will help to keep the costs of settlement payments down for another 12 months.
The government has launched a consultation to tackle non-compliance with the IR35 regime in the private sector. If the main proposal is implemented, businesses engaging individuals who supply their services via their own company or partnership (intermediary) will be responsible for determining whether the IR35 rules apply. If so, the party paying the intermediary will be responsible for operating pay-as-you-earn tax and national insurance contributions on the fees that it pays to the intermediary.
Her Majesty's Revenue and Customs has published guidance on the new rules that require income tax and national insurance contributions to be paid on all payments in lieu of notice from April 6 2018. While the guidance had been eagerly awaited, given the uncertainty over how the rules will operate in practice, a number of questions remain unanswered.
New tax rules will mean that income tax and national insurance contributions must be paid on all payments in lieu of notice from April 6 2018. However, the new rules are complex and although Her Majesty's Revenue and Customs has confirmed that it will soon issue guidance on how they operate in practice, further details published recently have only added to the confusion.
Income tax and national insurance contributions must be paid on all payments in lieu of notice from April 6 2018. The new rules emerged from a government consultation on the simplification of the tax treatment of termination payments. However, far from simplifying their taxation, the rules impose a complex administrative burden on employers and are likely to increase the costs to both employers and employees.
The chancellor of the exchequer announced in the Autumn 2017 Budget that there would be a consultation in 2018 to tackle non-compliance with IR35 rules in the private sector. While extending the reforms to the private sector might help to level the playing field between it and the public sector, such a change would also increase burdens and costs for businesses.
The government recently published the Finance Bills 2017 and 2018, which contain the latest proposals for changes to the tax and national insurance treatment of termination payments. The updated legislation, which is likely to be enacted, simplifies the rules regarding non-contractual payments in lieu of notice. However, the circumstances in which foreign service exemption or relief will be abolished have been widened.
The chancellor's Autumn Statement included welcome news regarding the forthcoming reform of the tax and national insurance treatment of termination payments. Among other things, the employer national insurance and income tax treatment will be aligned; the existing employee national insurance exemption on termination payment will be retained; and the distinction between the different types of payment in lieu of notice will be removed.
In 2015 the government launched a consultation to simplify the tax and national insurance treatment of termination payments. A further consultation has now been published confirming the proposed changes, together with draft legislation, to take effect in April 2018. While many of the more draconian suggestions in the 2015 consultation have been abandoned, there is a sting in the tail.
The government is committed to boosting productivity by increasing the quantity and quality of apprenticeships. To this end, it aims to create three million apprenticeships by 2020 and introduce new apprenticeship standards. Employers with a wage bill of more than £3 million will pay an annual levy of 0.5% to help to fund the initiative.
The chancellor of the exchequer has announced in the 2016 Budget that legislation will be introduced with effect from April 2018 to clarify the tax treatment of termination payments. The reforms will distinguish between payments treated as earnings and thus subject to income tax and national insurance contributions in full, and payments treated as termination payments and thus eligible for the £30,000 exemption.