The not so "mini" budget: what does it mean for employers?
Friday 23 September 2022 saw the Chancellor deliver the "mini-budget" which was far from "mini" but contained a number of significant changes. In this alert we summarise some of the key changes impacting employers and analyse the impact of the repeal of the IR35 Off Payroll Working Rules.
Summary of key changes from an employment perspective include:
- Reducing National Insurance contributions
The recent 1.25% rise in National Insurance contributions will be reversed from 6 November 2022.
- Reversing the Health and Social Care Levy
Cancelling the introduction of the Health and Social Care Levy as a separate tax from April 2023.
- Income Tax cuts
From April 2023 we'll see a reduction of 1% to the basic rate of income tax reducing it from 20% to 19%. The additional rate of income tax (45% for earnings over £150,000) will be removed from April 2023.
- Industrial action legislation
The government will introduce legislation that will ensure minimum service levels can be put in place for transport services so that industrial action doesn’t make it impossible to get to and from work, and to make it easier to settle industrial disputes by ensuring meaningful employer pay offers are put to employees.
- Removing the bankers’ bonus cap
The Prudential Regulation Authority will remove the current cap to bankers’ bonuses. This cap limits remuneration of certain bank staff to 100% of their fixed pay (or 200% with shareholder approval). The government has stated that bonuses align the incentives of individuals with those of the bank, in turn supporting growth in the UK economy.
- IR35 Off-Payroll Working Rules
Repeal of the IR35 Off-Payroll Working Rules for the public sector and private sector with effect from 6 April 2023.
There have also been changes in relation to company share option plans as well as reforms to the pensions regulatory charge cap which our specialist incentives and pensions team can advise you on, should you have any queries.
Repeal of IR35 Off-Payroll working rules
What does this mean?
From April 2023, workers across the UK providing their services via an intermediary such as a personal service company ("PSC") will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.
What is the likely impact?
Companies who are "end-user" clients in the contractor relationship are likely to welcome this change which is designed to reduce administrative burden on companies (e.g. from April 2023 they no longer need to carry out status determinations) and also means, importantly, that the tax and NICs liabilities will once again sit with the PSC rather than the end client. Accordingly, it may lead to an increased use of contracting with and via PSCs.
However, employers will still need to be aware of their legal obligations such as those under the Criminal Finances Act 2017 in which employers are obliged to take reasonable steps to prevent the facilitation of tax evasion in their supply chain. A failure to do so can result in a corporate criminal offence. Accordingly, organisations will still need to exercise care. For example if they continue a contracting arrangement with a PSC which, prior to the repeal, had been a deemed employment engagement, will this raise any questions about the company's compliance with its anti tax evasion obligations? This is only a question at this stage and time will tell. It will also be interesting to see if HMRC pay more attention to engagements which were previously considered to be "deemed employment" under the current regime.
What should employers do now in respect of the IR35 Off Payroll repeal?
- The current regime remains in force until April 2023 and employers should continue to comply with their obligations. However, they may need to start to plan their approach re engaging contractors going forward. For example if they had introduced a policy which effectively banned the organisation from contracting with PSCs will this be changed?
- Employers may also need to think about long term projects which straddle the change of regime. How will they deal with projects that start pre-April 2023 but continue after the current regime is repealed?
- Employers may wish to review their template consultancy agreements and have revised template agreements in place accounting for the changes from April 2023 onwards.
If you have any questions on any of the topics covered in this alert, please contact Richard Freedman, Leanne Raven or your usual Stephenson Harwood contact.