Budget Overview – Good news for small business but contractors are still hit

In the build-up this was billed as George Osborne’s “most boring Budget” as few expected any major changes. In the end, it failed to deliver any major surprises but did have a few key points that recruitment agencies and contractors alike should take note of.

Overall, the Budget was good for small businesses and contractors, self-employed people, freelancers and temporary workers all had something to celebrate. However, changes to the way Personal Service Companies (PSCs) in the public sector operate and confirmation that new restrictions on travel and subsistence claims will go ahead will cause many self-employed people concern.

Here, we look at the key points and highlight what recruitment agencies and contractors need to consider.

A new opportunity for contractors

First, the good news. The Chancellor is confidently predicting further growth, a national economic surplus by 2019-20 and one million more jobs – creating a wealth of opportunities for the UK’s flexible workforce.

Key points in the budget included cutting corporation tax to 17%, major investment in key infrastructure in the north and south, big reductions in business rates for small businesses, extra support for the oil and gas sector and a drop in capital gains tax.

From a personal point of view, the tax free allowance is also up as is the threshold for the 40% highest tax band. Saving for the future has also seen some benefits with a range of new ISA products and measures.

All of this will help the UK’s army of 1.6 million self-employed people to secure new opportunities, work more efficiently and, crucially, take home more money.

Travel and subsistence restrictions are going ahead

Now for the bad news. Despite repeated protests and a well-supported call for a judicial review, the Chancellor used the Budget to confirm that new restrictions on travel and subsistence claims will come into force as planned on April 6.

Under the new rules, anyone working through an intermediary such as an umbrella company or who is under the “supervision, direction or control (SDC)” of an employer will no longer be able to claim tax relief for expenses incurred getting to the place of work.

The new regulations also say if taxes aren’t paid properly or false documents are used to avoid SDC implications, directors of the intermediary and/or company will be liable, and the providers of the fraudulent documents may also be liable.

Despite more details being published, there is still a great deal of confusion about who will be affected. The Government has said it will provide further clarification on SDC shortly, and will be consulting over the next few months regarding changes to IR35 for those working in the Public Sector – further details below…

We’ve worked hard to make sure our clients who are affected by this will still benefit from working under an employment business but many others are not prepared for these changes and this still has the potential to have a big impact on contractors and recruitment agencies.

Crackdown on public sector contractors

Another measure which should concern recruitment agencies and contractors is a move to make employers and agencies responsible for deducting tax and national insurance from personal service companies in the public sector. This is part of a wider £12bn crackdown on tax avoidance.

Under the rules, public sector organisations and recruitment agencies that provide the public sector with freelance workers will be responsible in ensuring that workers pay the correct tax. These people are described as “off-payroll working in the public sector” and include those people working for Government departments, local government, NHS, schools, BBC and publically owned companies.

This shift in responsibility will cause a lot of concerns among organisations and I fear also heralds a move to make the private sector take on the same responsibilities in the months to come. We’ll be keeping a close eye on this issue but if you are a recruitment agency or contractor who fears they will be affected by this, get in touch and we’ll be happy to help.

Clarity needed on IR35

Largely, this budget has been good for business and for the UK’s flexible workforce – with the exception of contractors working in the public sector. We can draw hope from increased opportunities and a friendlier tax environment.

However, despite multiple calls, we still lack clarity on IR35. This will have an immediate impact on those working in the public sector and could have serious consequences for the genuinely self-employed. Ultimately, this will most likely be rolled out to all sectors and we need to keep a close eye on developments to the Intermediaries Legislation in the months to come.


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