The details released after the 2018 Budget statement revealed a range of new restrictions for businesses. However, they have been structured to reduce the impact on smaller businesses.
Off-payroll working and IR35
One measure announced was the expected extension of the off-payroll working rules, known as IR35, to the private sector. This has now been pushed to April 2020. The change will place responsibility for taxation of off payroll workers with the organisation offering the engagement.
This change has already been brought into effect in the public sector, despite ongoing uncertainty about how the rules should be applied - with even HMRC settling IR35 cases outside employment tribunals. The complex rules, uncertain results from HMRC’s CEST employment status tool and large costs for mistakes, may discourage some companies from using off-payroll workers.
Fortunately, small organisations are to be exempt, although exactly how the government will define a small organisation in this context remains to be seen.
Restricting reliefs and allowances
Small organisations will escape a new restriction from April 2020 as the government will withdraw the employment allowance (EA) from employers with national insurance contributions (NICs) bills of £100,000 or over. The EA allows employers to claim up to £3,000 of class 1 NICs every year.
From April 2019 new restrictions will also apply to entrepreneurs’ relief. The minimum period during which qualifying conditions must be met will be extended from twelve to twenty-four months. Also, from 29 October 2018, shareholders claiming entrepreneurs’ relief must be entitled to at least 5% of the distributable profits and net assets of a company, in addition to the current requirements on share capital and voting rights. The relief will still apply if a shareholding is diluted below 5% by fund-raising events after April 2019.
The costs of employees
The national living wage will increase 4.9% from April 2019, with the national living wage (NLW) for employees aged 25 and over will rise to £8.21.
Whilst salary costs will increase, there is some good news for small employers with apprentices. The co-investment rate for apprenticeship training will be cut from 10% to 5% as part of a drive to encourage employers to take on young staff for training.
The impact of these changes, which aren’t headline material, could be significant.