Budget 2018
25 November 2018
This article was featured in the December 2018 / January 2019 issue of the magazine.
CIPP’s policy team outline the key announcements
Presenting his last Budget before the UK exits the EU, the chancellor, Philip Hammond, delivered a speech which took an hour and a quarter: the quarter to tell us the ‘need to know’ items, and the hour filled with the usual school playground haranguing of the opposition. However, the chancellor’s task this year was not enviable because the ‘deal or no deal’ debate continues with many questions still unanswered. There was the admission to being at a pivotal moment in Brexit negotiations, but the government is confident, though not complacent, and is “preparing for every eventuality”.
We were assured: it is a budget for Britain’s future, a budget paving the way for a brighter future, a budget for hard working families, for the strivers, the grafters and the carers; that government would minimise the amount of tax it has to take from their wages.
The economic forecast from the Office for Budget Responsibility (OBR) was positive. With wages growing at the fastest pace in almost a decade we were assured of sustained real wage growth in each of the next five years.
The OBR also confirmed significant improvement in public finances with national debt having peaked in 2016–17. This apparently means a new path for public spending: “Fiscal Phil says fiscal rules, OK” – no, I’m not making that up, the chancellor really did say that.
The speech ended with the chancellor declaring “We have reached a defining moment…the era of austerity is finally coming to an end…but discipline will remain”.
So, what were the key changes announced that employers and payroll and pensions professionals need to know about?
...personal allowance and the HRT will then remain in force for the 2020–21 tax year
Tax rates and thresholds
Fiscal Phil’s Budget included the announcement that from April 2019 the income tax:
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personal allowance for tax-free income will be set at £12,500
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higher rate threshold (HRT), being the point when higher earners start to pay 40% tax, will be set at £50,000.
The personal allowance and the HRT will then remain in force for the 2020–21 tax year. But from April 2021, both will return to annual increases that are in line with consumer price index (CPI) inflation, as currently legislated for.
Company cars, vans and fuel
The Budget confirmed that figures for the company car fuel benefit charge and the van fuel benefit charge will increase in line with the real price index (RPI), and the van benefit charge will increase in line with CPI. Documents published with the Budget confirm that:
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the multiplier for the car fuel benefit charge will increase to £24,100 (from £23,400)
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the flat-rate van fuel benefit charge will increase to £655 (from £633), and
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the flat-rate van benefit charge will increase to £3,430 (from £3,350).
The van benefit charge for zero-emission goods vehicles increases from 40% to 60% of the standard charge from April 2019, as previously announced.
The diesel supplement for the company car tax appropriate percentage remains at 4%, subject to a maximum appropriate percentage of 37%. Cars that meet the Euro 6d standard (also known as real driving emissions step 2, RDE2) are exempt.
Apprentices
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Transferring levy funds – Confirmation was given that from April 2019 levy-paying employers will be able to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains.
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Contribution to funding costs halved for non-levy paying employers – The co-investment rate for smaller businesses taking on apprentices will halve from 10% to 5%. It is expected that the change to 5% contribution will only apply to new starters from April 2019, but it is not yet known if this reduced contribution will also apply to levy-paying employers when their levy pot is empty.
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Employer-designed apprenticeship standards – The government will also provide up to £5 million to the Institute for Apprenticeships and National Apprenticeship Service in 2019–20, to identify gaps in the training provider market and increase the number of employer-designed apprenticeship standards available to employers.
All new apprentices will start on these new, higher-quality courses from September 2020.
PAYE special arrangements
Following the consultation held during summer 2018 on the tax and administrative treatment of short-term business visitors (STBV) from overseas branches of UK-headquartered companies, the government has, in response, made these two proposals:
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The UK workday rule will be increased from thirty days or less to sixty days or less. The result being opening-up the pay as you earn (PAYE) special arrangement to a greater number of STBVs from branches and reducing the need for employers to monitor or restrict business travel when STBVs approach the workday limit.
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The existing PAYE reporting and payment deadlines of 19 April and 22 April will be changed to 31 May to allow employers more time to gather relevant information about their STBVs to operate PAYE accurately. It was clear that these deadlines are too restrictive for businesses making it difficult for them to comply with their obligations.
...criteria found in the Companies Act 2006 to define small businesses
National Insurance contributions
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Class 1 limits and thresholds – National Insurance contributions (NICs) limits and thresholds for 2019–20 were published in associated documents.
The weekly:
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lower earnings limit increases to £118 (from £116)
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primary (employee) and secondary (employer) thresholds increase to £166 (from £162).
The upper earnings limit, the upper secondary threshold for under-21s, and the apprentice upper secondary threshold for under- 25s, all increase to £962 a week (from £892).
The class 1 NICs percentage rates remain unchanged.
- Employment allowance – The government has decided to target the employment allowance at smaller businesses, reasoning that it is a flat rate regardless of the size of the employer and is therefore less likely to be an incentive for larger employers. Therefore, from April 2020, the allowance will be restricted to organisations with a NICs bill below £100,000 in the previous tax year.
The rate of the employment allowance is to remain at £3,000 for 2019–20.
- Draft NICs Bill – The draft NICs Bill contained measures to abolish Class 2 NICs but, as previously announced, this change will not take place following concerns raised that it would have an adverse impact on the lowest-paid self-employed individuals.
Other proposals in the draft Bill will now go ahead from April 2020: the introduction of employer NICs on termination payments and on income from sporting testimonials.
NMW/NLW
Increases to the national living wage (NLW) and the national minimum wage (NMW) rates, which were recommended by the Low Pay Commission (LPC) and accepted in full, are shown in the table.
The LPC estimates that the NLW will reach the target of £8.62 in 2020.
Off-payroll working: private sector
From April 2020, reforms to the off-payroll working rules (known as ‘IR35’) will be extended to the private sector.
Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker.
Small organisations will be exempt, minimising administrative burdens for the smallest engagers. HM Revenue & Customs (HMRC) intends to work with stakeholders through the delivery of another consultation in a bid to provide support and guidance to medium and large organisations ahead of implementation.
The government has decided that for services provided to small businesses, the responsibility for determining employment status and paying the appropriate tax and NICs will remain with personal services companies. The government intends to use similar criteria found in the Companies Act 2006 to define small businesses. As a result, over 95% of businesses will not need to apply the reform.
HMRC is looking at where the CEST (check employment status for tax) tool, along with wider guidance, might be improved, both as part of normal good practice and to ensure it reflects the needs of the larger and more diverse private sector. HMRC plans to work with stakeholders to better understand the concerns about CEST raised in response to this consultation; these included saying more about mutuality of obligation, how to treat multiple contracts and clarifying the language used in places.
A further consultation on the detailed operation of the reform will be published in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in summer 2019.
Pensions
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Lifetime allowance – The Budget confirmed that the lifetime allowance for pension savings will rise to £1,055,000 for 2019– 20, in line with CPI inflation.
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Pension dashboards – The government is taking steps to support the launch of pensions dashboards that will for the first time allow an individual to see their pension pots, including their state pension, in one place.
The Budget confirmed that the Department for Work and Pensions (DWP) will consult later this year on the detailed design for pensions dashboards, and on how an industry-led approach could harness innovation while protecting consumers. DWP will work closely with the pensions industry and financial technology firms.
Tax avoidance and evasion
A further package of measures was announced to tackle tax avoidance and evasion, including the following.
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R&D tax relief for small and medium-sized enterprises – From 1 April 2020, the amount of payable research and design (R&D) tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. The government will consult on this change.
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Protecting taxes in insolvency – From 6 April 2020, when a business enters insolvency, more of the taxes paid in good faith by its employees and customers, and temporarily held in trust by the business, will go to fund public services rather than being distributed to other creditors. This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (i.e. value added tax, PAYE income tax, employee NICs, and construction industry scheme deductions).
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Tax abuse and insolvency – Following Royal Assent of Finance Bill 2019–20, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.
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Conditionality: hidden economy – Following a consultation – Tackling the hidden economy: public sector licensing, published December 2017 – the government will consider legislating at Finance Bill 2019–20 to introduce a tax registration check linked to renewal processes for some public sector licences. Applicants would need to provide proof they are correctly registered for tax in order to be granted licences. This would make it more difficult to operate in the hidden economy, helping to level the playing field for compliant businesses.
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International tax enforcement: disclosable arrangements – The government is enacting new legislation to allow the introduction of international disclosure rules about offshore structures that could avoid or be misused to evade tax.
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Offshore tax compliance strategy – The government will publish an updated offshore tax compliance strategy. This will build on the progress the UK has made in tackling offshore tax evasion and non-compliance since the previous strategy was published in 2014.
|
NMW/NLW Rates |
Current |
April 2019 |
Increase |
|
25+ rate |
£7.83 |
£8.21 |
4.9% |
|
21–24 rate |
£7.38 |
£7.70 |
4.3% |
|
18–20 rate |
£5.90 |
£6.15 |
4.2% |
|
16–17 rate |
£4.20 |
£4.35 |
3.6% |
|
Apprentice rate |
£3.70 |
£3.90 |
5.4% |
|
Accommodation offset |
£7.00 |
£7.55 |
7.9% |