Budget 2015 & Employment Status Review

Next Wednesday, George Osborne will stand up and make the last budget speech of this parliament. The proximity of the budget to the general election makes it far harder to predict than is often the case, with the scope for a fairly benign set of announcements and plenty of rhetoric but just maybe a headline-grabbing surprise or two (depending on what his also-electioneering coalition partners have allowed to slip through the net).

The Chancellor will be walking a fine line between maintaining the familiar refrain of fiscal responsibility and trying to pull a vote-wining rabbit or two out of the hat, whilst no doubt reciting recent success in terms of growth, jobs, wage increases and inflation and extolling the virtues of his ‘long term economic plan.’

Beyond the rhetoric, our list of possible areas of focus, as highlighted by the Institute of Chartered Accountants survey of Big Four opinion is as follows:

  • The formal ratification of the Diverted Profits Tax, the so-called ‘Google tax’, to stop multinationals such as Google, Amazon and Starbucks moving profits to low-tax jurisdictions
  • Ratification of the extension of capital gains tax on sales of residential property by non-residents
  • A possible further increase in the personal tax allowance in future years, or an increase in the national insurance threshold (helping low-earners), or an increase in the higher rate (40%) tax threshold (helping the ‘squeezed middle’)
  • The possibility of a slight easing on public sector spending cuts, in the light of a better borrowing and deficit reduction outlook
  • More measures to clamp down on tax avoidance, possibly including further criminal penalties for professional services firms promoting avoidance schemes
  • Hopefully for small businesses, an extension to both the £500,000 annual allowance for 100% tax relief on plant and machinery spending and the £2,000 annual employer’s national insurance allowance
  • Crucially for freelance contractors and personal service companies concerned with IR35 – a response to the Office of Tax Simplification’s review of Employment Status
  • More about investment in the north of the country and devolvement of tax powers


Employment Status Review

We would certainly welcome some indication from the Chancellor as to his reaction to the review by the OTS of employment status, particularly on his inclination, if any, to consider a statutory employment status test and/or on any moves toward the harmonisation of income tax and national insurance, which would both potentially be of material impact to freelance businesses, contractors and potentially all small businesses.

A sensible statutory test of employment status could be beneficial in adding a tremendous amount of much-needed clarity for freelance professionals, contractors and employers, by providing simple, quantifiable rules of the sort used in other countries, to decide when a individual is employed or not. However, as ever, the devil is in the detail and care would have to be taken to set any rules at a level that would not penalise genuine freelance contractor businesses.

Any merger of tax and national insurance looks extremely difficult, both technically and politically, and could have significant unintended consequences, particularly for small and start up businesses. For example, the suggestion of applying employer’s national insurance to dividends paid from close companies, which would add a massive burden to many small start-ups and SMEs with owner-shareholders and would seemingly be disastrous for enterprise and the economy generally, particularly for an economy that is thriving on the current start-up culture.


However, it should be noted that the OTS stressed that all of its many and varied proposed ways forward or actions were long term in nature and would require significant consideration, evaluation and planning before they could even be consulted on, let alone implemented.

It remains to be seen what is announced, or indeed whether the Chancellor will be around to implement it.

Posted by John Hoskin