In September this year, the Prime Minister Theresa May announced to her fellow Conservatives that the age of austerity was over. To a packed Conservative conference in Birmingham, the leader stated that “A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off”.
In a speech expected to be largely about Britain’s future outside of the European Union, the soundbite from the Prime Minister stating the end of austerity was an admission within the Conservative Party ranks that the nation was simply fed up with austerity after ten long, hard years after the financial crash of 2008.
This party shift was yesterday echoed by the chancellor Phillip Hammond, who announced his budget with rhetoric similar to Mrs May in September, with a budget that signals “austerity is coming to an end”. The chancellor did also mention with a hint of caution, stating “discipline will remain”.
But what does this mean for the contingent workforce? In a budget that was more generous than anticipated, there were a few various bits which would be in the interest of contractors, freelancers, and small businesses. We’ve highlighted five points which we think will impact contractors the most, and what agencies should be made aware of going into 2019 and beyond.
The Changing of IR35 in the Private Sector
Following the changes to IR35 in the public sector in April 2017, the chancellor announced that the same changes will be extended into the private sector in April 2020. However, this change will only be applied to ‘medium’ and ‘large’ enterprises. The criteria on what the government defines a ‘medium or large’ enterprise remains to be seen.
The proposed change to IR35 in the private sector is arguably the most important announcement for contractors within the 2018 budget. The changes mean that as within the public sector, the individual is not responsible in deeming whether their contract is inside or outside of IR35. This will instead be down to the end client that the contractor is working for, it’s then the responsibility of the fee payer (possibly a recruitment agency or third party) to pay the correct levels of tax assigned to that contractors work if they are inside IR35.
Although this was announced, in the budget - don't expect any immediate change. These proposed changes are still in consultation for the next 17 months, so it's business as usual for now.
For any more information in regards to the complexities of IR35, you can always refer to our IR35 help page.
Digital Service Tax
The government has also announced a ‘digital service tax’ targeted at large technology firms such as Google, Facebook and Amazon, with the aim to recoup millions in tax. Technology giants have been in the spotlight in recent years for the little tax that they pay, and it was only a matter of time before the government looked to change the law in regards to how they pay tax.
However, the digital service tax will not be applied to small businesses or contractors who work within the digital landscape. The tax is targeted as digital firms who generate more than £500 million in global sales. The government expects to rake in hundreds of millions back in tax when the digital service tax is introduced in 2020.
Despite Brexit on the horizon, the Office for Budget Responsibility (OBR)has revised its economic forecast. The OBR anticipates growth in 2019 to be at 1.6%, then 1.4% in 2020 and 2021; 1.5% in 2022; and 1.6% in 2023.
Borrowing is also expected to decrease. In 2018, borrowing will be £11.6 billion less than forecasted in the Spring Statement in 2018, ensuring that the government hits it’s debt target 3 years quicker than expected.
This has an impact on the self-employed. With economic uncertainty due to the nature of Brexit and the current negotiations, there are questions surrounding the nature of the economy. The fact that economic growth is above expectations is peace of mind to self-employed and will calm any fears about Brexit. For now.
The big announcement in regards to entrepreneurs’ relief was anticlimactic as it was announced that there really wasn’t any change. There have been calls for entrepreneurs’ relief to be scrapped or reduced, and investing those resources in public institutions, such as the NHS. However, Mr Hammond reaffirmed his belief that the backbone to a striving economy is having dynamic entrepreneurs.
However, the government did double the ownership requirements for entrepreneurs’ relief, from 12 months to 24 months.
Brexit is arguably the most important decision facing a government in recent memory. With uncertainty on how certain public institutions will function to how certain laws will work in a post-EU Britain, there is still a lot of question marks around how things will work for business and the self-employed from March 2019.
The chancellor announced that extra cash has been allocated for a variety of different public institutions, with £2.2 billion being set aside already. The chancellor also increased the money promised from £1.5 billion to £2 billion for when we leave the EU from March 2019.