Budget 2018: IR35, digital tax and National Insurance could be where the spotlight falls

Brian Palmer, tax policy adviser, AAT 

With Brexit uncertainty in the air, this year’s earlier-than-usual Budget isn’t likely to throw up any major fireworks. However, we’ve had some clues from the Conservative Party Conference, other ministerial speeches, and indeed the media as to what we might come to expect.

IR35

There has been speculation about further changes to IR35 Off-payroll working, legislation designed to combat tax avoidance by workers supplying services to clients through an intermediary such as a limited company. These workers would normally be classed as an employee if the intermediary wasn’t used. In particular, there are concerns from many quarters that new rules around determining responsibility for IR35 status will now be extended to companies in the private sector. 

AAT’s own consultation response said there was no evidence that the revised IR35 rules introduced in April 2017 are working, and that the changes shouldn’t be introduced into the private sector until there is robust evidence of success with the first phase. Even then, it should only be introduced after allowing business sufficient time to get ready for such a far reaching change.

If an extension was announced now, with a 2019 implementation date, it would leave insufficient time for businesses to adequately prepare, or for software companies to build the required handling-changes into their payroll/contractor payment processing products. Therefore, our message to the government would be not to rush this in.

Digital services tax

At the Conservative Party Conference this year Chancellor Hammond announced that he intends to impose a new ‘digital services tax’. This is an attempt to measure the value companies such as Facebook and Google generate from UK users looking at adverts on their platforms, and then introduce a tax to be paid on that value. 

AAT, like the CBI and others, absolutely wouldn’t support a digital tax at this stage; we see it as rather a blunt solution. One of the tax’s intended effects may be to make a more level playing field for bricks-and-mortar businesses, but we believe this would be tackled better through a significant review of business rates. Companies like John Lewis, for example, have a huge high street presence, yet at the same time 41% of their sales are online so they would understandably be wary of a new digital tax. 

Reform to business rates is undoubtedly desperately needed, and whilst discussion of the best way to achieve that takes place we believe that the government should freeze any increases in the current business rates regime.

National Insurance

National Insurance is a thorny area for some, with the self-employed paying less National Insurance contributions than those in employment. Many pundits supported Philip Hammond’s ill-fated proposed 1% increase in the rate of class four NI last year, but the post-Budget outcry led to him making an immediate U-turn. With the current various economic uncertainties, it is unlikely that any further attempt at change will come in this Budget but, at some point something is going to have to give.