The Government’s 2016 Budget focuses mainly on five key areas, notably:
– reforms of business tax
– devolving power to local communities;
– education and children;
– new major commitments to projects for national infrastructure;
– backing those who work hard and save.
The Chancellor also put forward new tax rules that will apply to people working off payroll through limited companies. This will only be relevant to the public sector, the rules remaining unchanged for working in the private sector.
Reform of the intermediaries legislation
To date, the liability to pay correct employment taxes rested with the worker’s own company when employed in the public sector. From April 2017 the public sector body, agency or third party that pays the company will be responsible for this. There will be a consultation period on the proposed change and HMRC has published explanatory notes to give a helpful overview as the new legislation relates to personal service companies.
Reform of IR35
This relates to the intermediaries legislation in that any IR35 reforms will be limited to the public sector. The public sector employer will take responsibility for assessing if IR35 applies to a specific engagement rather than an individual’s personal service company making the call.
Effect on contractors
The chief executive of PRISM, Crawford Temple, states: “The Chancellor has not announced a strategic review of legislation affecting contractors which PRISM believes is a huge missed opportunity. He is forcing the employment intermediary sector to soldier on without any clear recognition for the third key way workers choose to be engaged in modern Britain, as contractors.
“Our members are still unable to invest in the future with any certainty and the country’s growing army of contractors will continue to suffer the worst of both worlds.”
National Insurance (NIC)
Class 2 National Insurance will be abolished from 6 April 2018.Self-employed people currently pay a rate of £2.80 a week for Class 2 NIC and also pay Class 4 NIC on business profits. The change means that only Class 4 NIC will continue to be paid, with reforms that will permit the self-employed to carry on building their entitlement to state benefits – Class 2 contributions currently cover these.
The Chancellor announced a number of measures that will affect businesses, both small and large. The major announcements include:
– Corporation tax headline rate will drop to 17% by 2020 – it currently stands at 20%;
– £12bn is expected to be raised from anti-tax evasion and avoidance measures, also by 2020.
– A two-band levy on the soft drinks industry will be introduced in 2017 as an incentive to companies to reduce added sugars in their products and consequently minimise the amount of tax they may have to pay;
– The small business tax relief annual threshold will be raised to a maximum of £15,000; it currently stands at £6,000 and will exempt many thousands of businesses;
– The supplementary charge for gas and oil producers will be halved, dropping to 10% from 20%.
The Budget also addressed personal taxation in four areas:
– The tax-free personal allowance will rise to £11,500 from April 2017;
– The 40% tax threshold for individuals will go up from £42,385 to £45,000, also from April 2017;
– Insurance premium tax is raised by 0.5%;
– There is a cut in Capital Gains Tax from 28% to 20%; basic-tae taxpayers will get a cut from 18% to 10%.
The Chancellor announced a number of major infrastructure projects and other initiatives for England, Scotland and Wales.
– Crossrail 2 in London, linking the north east and south of the capital, gets the green light, as does the HS3 proposed to link Manchester and Leeds across the Pennines;
– Upgrades to the M62 and further road improvements in the north of England have over £230m earmarked;
– Flood defences schemes are to benefit from £700m;
– Towns and cities in the south and west of England will get new elected mayors;
– Severn River crossing between Wales and England will see tolls halved by 2018
– Libor bank fines will be distributed in Scotland to develop community facilities in Helensburgh and contribute to personnel at the Faslane naval base.
Savings and pensions
The Budget put forward several initiatives in the area of pensions and savings, notably:
– A new “lifetime” ISA for those under 40 – government will contribute £1 for every £4 and individual saves;
– The annual ISA limit will rise to £20,000 from £15,000;
– Low-paid workers can benefit from a new savings scheme backed by the state; this could be worth up to £1,200 over a four year period;
– Abolition of the Money Advice Service has bee confirmed.