rebus' response to the Budget 2017
The Autumn Budget 2017 contained some good and bad news for contractors. There were no immediate tax increases that affect contractors. However, the Chancellor announced a series of consultations which could suggest a change of approach to those in the flexible working market.
Please see the key points below that I believe affect us:
Prior to Wednesday’s Budget there were rumours circulating that the VAT registration threshold might be lowered to bring it in line with the majority of other countries in the EU. A report by The Office of Tax Simplification (OTS) suggested the UK threshold might be too high and called for it to be reduced. The Chancellor confirmed that the threshold would not be reduced for at least the next two years.
The Rebus View:
This is great news for small businesses as it keeps them out of the VAT system altogether. Had they been forced to register for VAT we would have seen small businesses suffer from serious cash flow problems, additional strain caused by increased record keeping requirements and additional accountancy costs being incurred.
With this in mind, we feel that the £60 per month Limited Company product offered by Rebus represents fantastic value for businesses below the £85,000 VAT registration threshold.
Increase in the National Minimum Wage
In April 2018, the National Minimum Wage for people aged 25 and over will rise to £7.83 per hour.
In general, this is good news for contractors, especially those at the lower end of the market who will see a small increase in their take home pay. However, this will increase employment costs for businesses UK wide and will also see the Umbrella entry level rate increase as a result.
The Rebus View:
We agree that the increase in the National Minimum Wage is good news for those at the lower end of the market and should be applauded. However, with this and the additional employer liabilities such as pension enrolment and the apprentice levy, agencies and umbrella companies alike will be under even more pressure.
We feel that this will be felt most by those umbrella companies operating with margins at the higher end of the market. In recent years we’ve seen both a consolidation of providers with the bigger companies buying up market share and in other cases some well established players leaving the industry completely.
The Rebus ethos is simple, we believe that by setting our margins from a modest £15 helps the contractor retain more of his wage whilst at the same time keeps the entry level rate as low as possible for the agency.
IR35 Reform in Private Sector
It came as a surprise to many that the Chancellor’s speech did not cover IR35 or off-payroll working. It was however covered in the red book when he committed to a “careful consultation”.
Despite the chaos caused by the reforms in the public sector, the Chancellor maintains that compliance has increased as a result. Subsequently, it is anticipated that the reform will be extended into the private sector despite repeated and vocal opposition from the FCSA and others.
The budget document states:
“Off-payroll working in the private sector – The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore, the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
The Rebus View:
Despite claims from the Chancellor that compliance in the public sector has increased, our experience is that the reforms have had a devastating effect on the public sector labour market with hundreds of contractors leaving to pursue work in the private sector. We support the wide-ranging lobbying by the FCSA and firmly believe that this is a contributing factor in the government not simply bulldozing ahead with the reforms.
Also, the extension of the reforms into the private sector will mean the level of tax liability risk for agencies will increase. If they are deemed to be paying someone as ‘outside IR35’ where HMRC believes they are caught by it they can be liable for backdated tax, interest and penalties. It is essential that agencies use compliant payroll companies that guarantee all necessary employment status checks are completed prior to contractors being paid.
Once again Rebus believe that having an ex-HMRC Inspector on the Board gives us a distinct advantage over even the biggest competitor when negotiating existing and potential legislation.
If you wish to discuss anything highlighted above or any compliance issues in general please contact us directly