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Budget 2016: relief for employers as major tax reforms shelved, says expert


UK employers "may be breathing a sigh of relief" following the 2016 Budget, after consultation responses indicated that many major employment tax reform initiatives had been deferred or dropped, an expert has said.

Plans to shift the liability for ensuring that the correct tax is paid on services supplied by a worker engaged through a personal service company (PSCs) or other intermediary will only apply to public sector employers, while the current rules in relation to the taxation of termination payments will largely be preserved for the time being, according to Jon Robinson of Pinsent Masons, the law firm behind Out-Law.com.

The government has, however, announced new anti-avoidance provisions designed to prevent the use of so-called disguised remuneration schemes to avoid tax. This will include a new targeted anti-avoidance rule to prevent the exploitation of technical 'loopholes' in the legislation, according to the Budget document.

Robinson said that when taken together, the changes announced were "not as drastic as some had feared".

"In particular, there are no immediate significant reforms to termination payments, salary sacrifice schemes or the IR35 rules on engaging workers through intermediaries, outside of the public sector," he said. "Equally, there are no changes announced on reforming travel and subsistence payments outside the world of intermediaries, and no developments on aligning PAYE and NICs."

Consultations published by the government at last year's Summer Budget had suggested removing the distinction between contractual and non-contractual termination payments for tax purposes, and shifting the responsibility for ensuring that an independent contractor complies with their tax liabilities from the individual to the 'end user' of the service. If implemented, these proposals would have required fundamental changes to the existing rules, Robinson said.

Instead, the government has announced that the current rules governing termination payments will be preserved for the time being, leaving termination payments that are not taxable earnings free of income tax up to £30,000. From April 2018, employer national insurance contributions but not employee national insurance contributions will also be payable on the amount over £30,000. The government has also confirmed that it will "tighten the scope" of the tax relief to prevent manipulation, so that all payments in lieu of notice (PILONs) become fully taxable.

The government has also announced that public sector employers will become responsible for ensuring that any 'off-payroll' workers including those engaged through PSCs pay the correct tax from April 2017, as will recruiters in circumstances where the individual is engaged through an agency. Non-compliance with the rules requiring off-payroll workers in disguised remuneration to pay tax as employees, known as IR35, is currently costing the taxpayer "around £440 million a year", according to the 2016 Budget report. Currently, it is the responsibility of the individual to ensure that the correct tax is paid.

"Given the spotlight that has been shone on public sector bodies engaging individuals through companies, it is perhaps not surprising that the government has decided action needs to be taken in this sector – while bowing to pressure from other sectors, construction and technology in particular, which pushed back hard on the consultation proposals," said Robinson. "It cannot be ruled out that the position will be revisited in the private sector in due course."

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