UK: Budget 2018 confirms IR35 reforms will extend to the private sector

The off-payroll working rules (commonly known as IR35) seek to ensure that individuals who are engaged through personal service companies (PSCs) by service users (End Users), but who perform roles equivalent to employees, are taxed through payroll in the same way as employees.

Historically, the obligations to operate payroll and to pay associated employer NIC costs have lain with PSCs rather than End Users; however, in 2017, reforms to IR35 were introduced that transferred these obligations to public sector End Users. It has now been announced that these reforms will be extended to the private sector. Continue reading

UK: Budget 2018 announces NIC change delay and new minimum wage rates

An important announcement in the Budget for employers to note was the decision to delay by a further year the introduction of employer Class 1A NICs on termination payments over £30,000, until April 2020.

There will also be changes to the availability of employment allowance in respect of NIC liability from April 2020 and to the apprenticeship levy from April 2019.

The new national minimum wage rates applicable from April 2019 have also been confirmed, with the rate for those aged 25 or over set at £8.21 an hour. (The Real Living Wage has also increased, to £9 an hour outside London and £10.55 an hour in London.)

Our tax team’s briefing on the Autumn Budget is available here.    Our blog post on the proposed changes to off-payroll working rules from April 2020 is here.

UK: HMRC and HM Treasury Publish Consultation to Extend Recent IR35 Public Sector Reforms to the Private Sector

On 18 May 2018, HMRC published a consultation document entitled “Off-payroll working in the private sector” with the aim of tackling what it perceives as high levels of non-compliance in the private sector with the existing off-payroll working regime (HMRC predicts the costs of such non-compliance will reach £1.2 billion in 2022/23 if this issue is not dealt with).

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UK: employers should update template termination agreements in light of April tax changes and developments on NDAs

The tax treatment of payments for termination of employment has changed for terminations taking place on or after 6 April (see our earlier blog post here). The effect of the changes is to fully tax as earnings such part of a termination payment as is deemed to be in respect of unworked notice (the post-employment notice pay or “PENP”); the balance can then benefit from the £30,000 tax exemption. PENP is calculated using ‘basic pay’, which includes pay that would have been received had it not been salary sacrificed, but excludes overtime pay, bonuses, commission, allowances, benefits in kind etc. HMRC has now updated its Employment Income Manual to confirm that the calculation must be done even where the employment is terminated without notice by making a contractual payment in lieu; in the rare cases where the statutory PENP exceeds the contractual payment, the excess will be fully taxed. Although not expressly covered by the Manual, the HMRC may well take the view that the PENP calculation should also be applied in cases where compensation is paid following termination without notice for alleged gross misconduct or constructive dismissal.

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