Budget 2018 - the HR/employment law aspects

A summary of the 2018 Budget proposals of interest to HR.

IR35 and the private sector

Possibly the biggest impact on HR of any of the Budget announcements is the news that the off-payroll IR35 rules will be extended to the private sector from 6 April 2020 for medium to large companies only. The existing IR35 rules will continue to apply to small businesses. For the background to this change, see Consultation on IR35 regime for the private sector.

In the private sector it is currently the intermediary’s responsibility to assess whether IR35 is engaged and to pay tax and NICs accordingly – meaning that the tax risk lies with the intermediary rather than the end user. From April 2020, it will become the responsibility of the engaging business to determine whether IR35 applies to the contractors it engages via an intermediary and, if so, to pay tax and NICs on the sums paid to that intermediary for the contractor’s services. A further consultation is awaited on the details of this change.

The changes will bring large and medium sized businesses in the private sector into line with the public sector: public authorities were made responsible for determining employment status and, where appropriate, deducting income tax and national insurance in 2017.

Employers should start to amend their contractor contracts now, making it clear that whilst it is currently the contractor’s obligation to pay income tax and NI due, if that obligation becomes the employers then they can deduct this from the contractor’s fees.

Employers’ NICs and termination payments

The introduction of employer Class 1A National Insurance contributions (NICs) on termination payments over £30,000 has been delayed until April 2020. See here for our previous article on this topic.

Other announcements

  • The income tax personal allowance will increase to £12,500 with the higher-rate threshold to £50,000 for 2019-20, a year earlier than targeted. These thresholds will remain at the same level in 2020-21 and thereafter will rise in line with the CPI. Despite speculation, there were no changes to the tax relief for pension contributions.
  • The following increases to the National Minimum Wage will take effect in April 2019:
  • apprentices: £3.90 an hour
  • 16-17-year-olds: £4.35 an hour
  • 18-20-year-olds: £6.15 an hour
  • 21-24-year-olds: £7.70 an hour
  • National living wage (workers aged 25 and over): £8.21 an hour
  • From April 2019, businesses liable to pay the apprenticeship levy will be able to invest up to 25% of the levy to support the training of apprentices in their supply chain. For smaller employers who are not liable to pay the apprenticeship levy, the ‘co-investment rate’ for apprenticeship training will be reduced from 10% to 5%.