At time of writing, Sajid Javid has just resigned as Chancellor of the Exchequer, making him the first Chancellor in history never to have delivered a Budget speech. The new Chancellor, Rishi Sunak, will deliver his first Budget less than four weeks from his appointment. So what might we expect, asks Mark Hood of HNH
In recent weeks, there has been increasing talk about what the Government might do to limit Entrepreneur’s Relief, as well as speculation about the introduction of a ‘mansion tax’ and restriction of pensions tax relief for higher-rate earners.
Focussing on ER, the availability of an effective 10% tax rate on capital gains arising on the disposal of certain business assets/shares has been the subject of much discussion. In particular, there seems to be a growing consensus that the relief (which applies to qualifying gains up to a lifetime limit of £10m) has not achieved the purpose for which it was introduced, and the 2019 Conservative Party General Election specifically noted that “we will review and reform Entrepreneur’s Relief”.
There are various possible outcomes of such a review, including, a reduction to the £10m lifetime limit, an increase to the 10% effective tax rate, reform into a different type of business tax relief, and abolition of Enterpreneurs’ Relief altogether. But we will have to wait until Budget Day for further details.
Amid all this speculation, it’s easy to forget that there are other changes to the tax regime already announced to come into effect on April 6, 2020. One of the key measures is the reform of off-payroll working (IR35) rules for the private sector.
Following the change in IR35 rules applying to the public sector from April 2017, similar reforms will move to the private sector with effect from April 6, 2020, applying to services provided on or after that date. As a result of this, where a worker provides services to an end client through an intermediary (in many cases, a personal service company (PSC)), responsibility for making a determination of a worker’s employment status will move from the intermediary to the end client.
If the off-payroll working rules apply, responsibility for applying PAYE/NICs as appropriate rests with the fee payer (or end client, if this is the same person), not the intermediary. If the end client does not provide a worker with an employment status determination, responsibility for applying PAYE/NICs on any payments will rest with the end client.
The new rules will not apply to ‘small’ companies, which are expected to be defined by reference to the Companies Act 2006. Given this exemption, it is expected that the vast majority of engagers will remain outside the IR35 rules.
Even so, it had been hoped that the Government would delay implementation of the new rules for at least one year, to allow for further consultation. In January 2020, the Government did announce a review of the IR35 changes, but only ‘to ensure the smooth and successful implementation of the reforms’, still to come into force from April 6, 2020. The change in rules is expected to generate revenue in excess of £1bn for the Exchequer in 2020/21, therefore it is highly unlikely that there will be any further delay.
The Budget is always a big event in the political calendar but, given recent events, it’s fair to say that this year will probably be more ‘eventful’ than usual. However, it’s critical that business owners and advisers alike do not take their eye off the ball, and be ready for the changes we already know are coming.