On 28 October, the UK government announced its 2018 Budget including forthcoming changes to the UK tax system. These included legislative developments that will impact global businesses with internationally mobile employees, as well as potentially significant domestic employment tax changes for contractors.
Short Term Business Visitors (STBVs)
HM Revenue & Customs (HMRC) have now published the response to the consultation into STBVs from overseas branches. These changes were introduced in the 2018 Budget and will only apply from 6 April 2020.
Of the two options proposed in the consultation, (i) extending the day count threshold for the special (Pay As You Earn (PAYE) tax withholding arrangement, or (ii) a full tax exemption for STBVs from overseas branches, HMRC have chosen to amend the special PAYE arrangement. HMRC believe that the new changes should still achieve the aim of easing the administrative burden for employers who have inbound employees visiting the UK for business. In summary:
- The 30 work day threshold limit is increased to 60 work days or less. HMRC believe this will open up the PAYE special arrangement to a greater number of STBVs from branches, and it will reduce the need for employers to monitor or restrict business travel when STBVs approach the 30 workday limit.
- PAYE reporting and payment deadlines of 19 April and 22 April will be changed to 31 May to allow employers more time to gather relevant information about their STBVs to operate PAYE accurately, and brings this in line with the STBV reporting deadline.
Personal Service Companies (PSCs)
One of the main changes likely to affect many UK businesses is where they engage with contractors, freelancers and consultants who use their own limited company.
In summary, if a company engages with workers that are not included on the UK payroll, consideration to the new rules (and the potential increased costs / administration) should be considered. HMRC and HM Treasury have announced an extension to the public sector IR35 changes to medium and large private sector organisations from April 2020. A formal definition of small organisations who will be exempt from this measure is yet to be released. This announcement will be of interest to all medium and large organisations who engage with contractors, freelancers or consultants through a limited company (PSC) or agency arrangement.
HMRC considered the IR35 changes to the public sector to be a success and are now extending them to address what they consider is ’endemic non-compliance’ in the private sector. HMRC state that as a result of the introduction of the new public sector off-payroll rules, 58,000 contractors per month are now paid through payroll under the IR35 rules. In one tax year this has generated over £410 million in additional PAYE and NICs, suggesting a practice that is clearly working well in their mind.
Currently, the IR35 rules are drafted so that the PSC is normally responsible for operating PAYE and NIC where it works for a private sector company. HMRC have amended these rules so that the engaging company will have responsibility for assessing whether the engagement is caught by IR35 and the fee payer would be responsible for operating PAYE and NIC (which would result in additional administration and potentially increased NIC costs). HMRC estimate that a third of individuals engaged through a PSC would fall within the IR35 rules, whilst only 10% of this population are taxed correctly under PAYE.
Other relevant announcements
Other specific measures announced in the UK Autumn Budget that impact employers include:
- Employment allowance reform – With effect from April 2020, the government will restrict the availability of the Employment Allowance to employers with employer's National Insurance contributions below £100,000 in their previous tax year (eg 2019/20).
- Apprenticeship levy – The government are halving the co-investment rate for apprenticeship training to 5% from its current level of 10%. Any excess above the permitted maximum will still be funded solely by the employer.
- Taxation of self-funded work-related training – Following the recent consultation, the UK government will be maintaining the scope of the current tax reliefs available to employees and self-employed.
- National Insurance contributions (NIC) on termination payments – The previously announced NIC changes to termination payments will now be legislated to take effect from April 2020.
- Vehicle benefits in kind – With effect from April 2019, the flat rate van benefit charge will increase to £3,430, the multiplier for car fuel benefit will increase to £24,100 and the flat rate van fuel benefit will increase to £655.
- Tax relief on pension contributions – Proposed changes to tax relief on pension contributions, that would have affected both inbound assignees and domestic, were ultimately not announced in this year’s Autumn Budget.