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Mini-Budget: IR35 will be repealed from April

The IR35 reform will be repealed from April 6, 2023, according to this morning’s mini-Budget.

Speaking to the House of Commons today (September 23), Chancellor Kwasi Kwarteng said from April, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.

Kwarteng also used today’s mini-Budget to scrap the additional rate of income tax and cut its basic rate to 19 per cent in a series of tax cuts which amount to £45bn.

The 2017 and 2021 reforms to the off payroll working rules – also known as IR35 – were a tax law that required the end client, and not the contractors they hire, to decide if the working relationship resembles a self-employed engagement or employment.

Under existing rules, the fee-paying party (either the end client or recruitment agency) shoulderd the liability.

The aim of the reform was to stop the promotion and misselling of disguised remuneration schemes, however the legislation has received criticism.

Kwarteng has repealed these reforms as part of the first steps in taking complexity out of the tax system.

He said: “To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.

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“So as promised, by the prime minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”

The changes will mean workers will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions.

This will free up time and money for businesses that engage contractors which the chancellor said could be put towards other priorities.

The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.

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IR35 reforms
In August, prime minister Liz Truss gave an interview where she indicated she would review the IR35 reforms.

The reforms were introduced in April 2021 to the private sector, and means that the responsibility for assessing whether a contractor is self-employed or employed is now with the end client, and not the contractor themselves.

The liability, and therefore financial risk, was also transferred to the fee-paying party.

The changes have been branded “a mess”, “unpopular” and “puzzling”.

The controversy surrounding the changes prompted the former chancellor, Sajid Javid, to pledge a review of IR35 as part of the Conservative party’s manifesto in the lead up to the general election.

By Sonia Rach

Source: FT Adviser

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The Budget: Government pledges investment in housing

In today’s Budget, the new Chancellor of the Exchequer Rishi Sunak announced that the government is investing in affordable housing, will create a simpler planning system and pledged to pay for the removal of unsafe cladding on tower blocks.

Sunak said that a further £9.5 billion has been earmarked for the Affordable Homes Programme, which will bring the total to £12.2 billion of grant funding from 2021-22 to support the creation of affordable homes across England. And local authorities have been given an interest rate cut of 1% on building of social housing.

Plus there will be £400 million for Mayoral Combined Authorities and local areas to establish housing on brownfield land across the country. The aim is to creating more homes by bringing more brownfield land into development.

The Budget also confirmed allocations from the Housing Infrastructure Fund totalling £1.1 billion for nine different areas including Manchester, South Sunderland and South Lancaster.

Another investment to help to stimulate housing and infrastructure growth across the country is an additional £328 million of housing investments in York Central, Harlow and North Warwickshire.

There will also be a new long-term Single Housing Infrastructure Fund to unlock new homes in areas of high demand across the country by funding infrastructure and assembling land for development.

Frank Pennal, CEO of Close Brothers Property Finance Division, a specialist development finance lender, commented: “This Budget is exactly what the doctor ordered for the housing market. It is hugely encouraging to see that the housing crisis has not been totally overshadowed and the government is making good on their manifesto pledge to prioritise housing supply.

“After decades of reduced investment this £12 billion extension of the affordable housing programme should act as a lightning rod to stimulate affordable housing supply.”

Dr Kristian Niemietz, head of political economy at the Institute of Economic Affairs, disagreed and said the Chancellor’s announcements on housing miss the point: “The crucial bottleneck of the housing market is land supply: we are simply not releasing enough land for housing development.

“As long as that bottleneck remains in place, pumping more money into housing construction – whether that is the announced £12 billion for affordable homes, the 1% interest rate cut for loans to build social housing, or the £400m for building on brownfield sites – will simply push up land prices even further. It will therefore ultimately make little difference to housing affordability.

“If the government had the courage to sort out the above-mentioned supply-side bottleneck (on which the Chancellor had virtually nothing to say), it could quite easily improve housing affordability across the board, while saving taxpayers’ money in the process.”

Planning system

The most significant barrier to building more houses is land availability, which is constrained by the planning system. Tomorrow, the Secretary of State for Housing, Communities and Local Government will set out comprehensive reforms to bring the planning system and a Planning White Paper will be published in the spring.

These reforms aim to create a simpler planning system and improve the capacity, capability and performance of local planning authorities (LPAs) to accelerate the development process. If LPAs do not meet their local housing need, the government says there will be firm consequences, including a stricter approach taken to the release of land for development and greater government intervention.

Cladding

The government will also invest an additional £1 billion to remove unsafe cladding from residential buildings above 18 metres, such as the ACM material that was used on Grenfell Tower.

Richard Silva, executive director at one of the UK’s largest professional freeholders, Long Harbour, said this is a huge victory for residents and the industry.

He commented: “It follows an open letter sent to the Chancellor last month, from cladding campaigners, residents, property managers and the UK’s largest freeholders, calling on the government to step in following failures in the building safety regime that dates back decades.

“We are delighted that the Chancellor has listened to the calls from residents and building owners and has expanded the cladding remediation fund, whilst recognising that neither leaseholders nor building owners should have to bear the cost of regulatory failure in the construction industry.

“Freeholders and managing agents have been working hard to fix these buildings as quickly as possible but central funding is essential for the acceleration of this process. We look forward to working with government to make these buildings safe as quickly as possible.”

Stamp duty for non-UK residents

The government will introduce a 2% stamp duty surcharge on non-UK residents buying residential property in England and Northern Ireland from 1 April 2021. The government says this will help to control house price inflation and to support UK residents to get onto and move up the housing ladder.

The money raised from the surcharge will be used to help address rough sleeping and the government will provide £643 million for accommodation and support services to help people off the streets in England.

Rachael Griffin, tax and financial planning expert at Quilter, commented: “As promised during the Tory campaign, a stamp duty surcharge for non-UK resident buyers has been brought in during the 2020 budget. However, Sunak has not quite gone as far at the Tory manifesto pledge and has opted for a 2% rather than 3% charge.

“This represents a crowd pleasing policy which will win over people worried that foreign house buyers are hoovering up UK property as an investment, only to leave it empty, which further exacerbates the housing crisis gripping the nation.

“While this surcharge introduction is welcomed, increasing the UK’s housing stock will have a more important impact for domestic buyers. Planning reforms, set to be announced tomorrow, may reveal additional new measures which aim to stimulate the construction of more housing.”

Richard Donnell, director of research & insight at Zoopla, commented: “The additional 2% stamp duty surcharge for non-UK resident buyers represents the latest in a long series of tax reforms, and may have a short-term impact on demand in higher value markets once it is introduced.

“For those who are looking at a longer-term hold, the additional upfront purchase cost will diminish in significance over time.

“In the interim, however, there will likely be some increased activity among non-UK residents looking to purchase before the new rules come into force.

“Dollar-denominated buyers may find that the additional cost is partly offset by currency movements, with an effective discount of more than 20% for those buying UK property now compared to the summer of 2014 – purely due to movements in the pound.

Disappointment at lack of stamp duty reform for UK residents

Calls for changes to stamp duty went unheard in this Budget and Richard Donnell said that stamp duty has become a southern tax.

He explained: “With SDLT lining the Treasury’s coffers to the tune of £8.3 billion as of March 2019, up from £2.7 billion ten years’ ago, it was always unlikely that the Chancellor would consider a significant stamp duty reform – particularly without an alternative source of revenue.

“Stamp duty has become a southern tax, and is widely regarded as one of the biggest inhibitors to market liquidity in London and the South East – from which 61% of SDLT receipts are generated.

“In keeping the tax bands unchanged and not in line with price inflation, 2.7 million homes have been pushed into the 5% band since 2015.”

By Joanne Atkin

Source: Mortgage Finance Gazette

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What can the property industry expect from this week’s Budget?

In its 2019 election manifesto, the Conservative Party committed to a fundamental review of the business rates system.

With the party having gained a majority in government, we should expect more details of this review to be announced in the Budget. Any review will have to consider real alternatives to the current regime and a land value tax system has been rumoured as a possible replacement.

A move to a land value tax would certainly be a fundamental step and would raise several key questions for commercial real estate, including who would ultimately bear the cost. What would the implications be on commercial rents if rates were stripped from the occupancy cost and what might the impact be on property investment values? There would also have to be detailed consideration given to how a land value tax would be set and administered as a direct rates replacement and its interaction with agricultural land, which is currently exempt, and residential land, where council tax is currently applied.

Due to the complexities and challenges with such a significant move, any potential change would likely be seen in the long-term. As a result, some additional short-term rates relief measures are expected to be included in the Budget. These are likely to be aimed at ameliorating the high-street bloodbath and levelling the playing field upon which online and bricks-and-mortar retailers compete.

With the UK’s housing crisis posing a problem for the government that won’t go away, we will no doubt see more measures announced on residential property. Successive governments have put headlines ahead of action when it comes to tackling our housing shortage and I fear the mooted increase in stamp duty land tax for non-residents falls firmly into that category.

The proposals for a surcharge on overseas buyers are especially jarring right now. Presenting the UK as an open economy that welcomes overseas investment should be high on the government’s agenda.

Demand-side measures, be they adjusting stamp duty land tax rates or Help to Buy, have created market distortions but haven’t tackled the issue at source. Building more new homes requires supply-side intervention by the government. This would include simplifying the planning process, incentivising town-centre repurposing and where necessary, local and national government coming together to take the lead on building new homes.

Beyond these topics, the industry will be hoping most for an uneventful Budget after successive years of change. In an uncertain world, the chancellor should give the industry breathing space.

By Russell Gardner

Source: Property Week

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Hammond says UK will need new Budget strategy in event of no-deal Brexit

Chancellor Philip Hammond has warned that the Government will have to adopt a new economic strategy if Britain leaves the European Union without a deal with Brussels.

On the eve of the Budget, Mr Hammond said he would have to tear up his plans for the economy and set out a new Budget if there was no Brexit deal when the UK leaves the bloc in March 2019.

“If we were to leave the European Union without any deal – and I think that’s an extremely unlikely situation but of course we have to prepare and plan for all eventualities as any prudent government would – if we were to find ourselves in that situation then we would need to take a different approach to the future of Britain’s economy,” he told Sky News’s Sophy Ridge on Sunday programme.

“We would need to look at a different strategy and frankly we’d need to have a new Budget that set out a different strategy for the future.”

He added: “We would want to see how markets and businesses and consumers responded to that.

“Then, as any responsible government would, we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction that would ensure that Britain was able to succeed, whatever the circumstances we found ourselves in.”

The Chancellor also hinted he would use his Commons statement on Monday to provide additional funding to smooth the transition to Universal Credit amid warnings low income families are being driven into debt.

“I’ve already put over £2 billion pounds into, over the last two Budgets, into smoothing that transition,” he said.

“We continue to look at how this process is working and if we find cliff edges and difficulties, frictions in the move from the old benefits system to Universal Credit then of course will always try to smooth those out and be pragmatic about it.”

In other measures, the Chancellor is expected to announce £28.8 billion to upgrade England’s motorways and other major arterial roads in a drive to invest in the UK’s infrastructure.

In an interview with The Sunday Telegraph, he also hinted there would be more money for defence and superfast broadband when he sets out his plans in the Commons.

Mr Hammond also signalled his determination to pursue a digital tax to ensure internet giants like Facebook pay a greater share of their profits into the Exchequer.

The Chancellor was handed an unexpected pre-Budget boost by the Office for Budget Responsibility, which suggested stronger than expected tax receipts and slower Government borrowing could hand him an additional £13 billion.

There is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK

Philip Hammond

As well investing in the road network – with a further £420 million for councils to repair potholes – the Telegraph reported he was preparing to spent at least a quarter of a billion pounds to help connect rural areas to the high speed internet.

After having previously having clashed with Defence Secretary Gavin Williamson over military spending, Mr Hammond indicated there would be extra cash in the Budget for the armed forces.

The Telegraph said there could be a cash injection for the military of up to £1 billion ahead of a long-term spending settlement next year.

“You are looking at someone who was defence secretary for three years. I absolutely get the problems and the challenges in defence,” he said.

Mr Hammond, who raised the prospect of a digital tax on the internet giants in his Conservative Party Conference speech in Birmingham, said the Government still hoped to get international agreement on the issue.

However, if that proved impossible, he indicated the UK was ready to act alone.

“British people have a really very strong sense of fairness, and there is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK,” he said.

“And when you get a really strong, across the board, sense of unfairness among the population something has to be done.”

Source: Shropshire Star

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UK budget and Bank of England take back seat to Brexit drama

Britain’s budget announcement on Monday and a “Super Thursday” at the Bank of England would normally be key moments for the world’s fifth-biggest economy, but this time they are likely to be overshadowed by the drama of Brexit.

Finance minister Philip Hammond and Bank of England Governor Mark Carney have little option but to sit on the fence as they wait to see whether a no-deal exit from the European Union, which they warn would harm the economy, can be averted.

Both men have other business they want to get on with.

Hammond is under pressure from Prime Minister Theresa May to end a decade of austerity to see off a rise in popularity of the opposition Labour Party.

At the BoE — where an interest rate decision and economic forecasts are due to be announced on Thursday — Carney and his fellow policymakers want to progress with their plan to raise borrowing costs gradually over the coming years.

That would allow the British central bank to follow the lead of other central banks, especially in the United States and Canada, which are dismantling 10 years of massive stimulus.

Expectations of another rate hike by the U.S. Federal Reserve in December are likely to grow if the monthly payrolls report on Nov. 2 shows further jobs growth and rising pay.

In the euro zone, data on economic growth and inflation on Tuesday and Wednesday will show whether the recovery in the single currency area has kept pace.

But in Britain, with Brexit just five months away, things are much less clear cut.

BREXIT FOG

There is no sign of a Brexit breakthrough with Brussels, in large part because May’s Conservative Party is riven over how close Britain should remain to the European Union after it leaves the bloc.

“The budget is likely to be something of a holding exercise until the Brexit fog clears and the MPC is likely to remain in a state of inertia until there is a bit more clarity on the state of the Brexit negotiations,” Ruth Gregory, an economist with Capital Economics, a research firm, said.

When he stands up in parliament on Monday afternoon, Hammond is expected to use his high-profile budget speech to try to cool the Conservative rebels by dangling the prospect of higher spending in the future, as long as a Brexit deal is done.

Britain’s economy has slowed since the 2016 referendum decision to leave the EU. But it has not suffered as badly as many forecasters expected, giving Hammond some fiscal wiggle room to fund higher health spending already promised by May.

Hammond might get further help if Britain’s budget forecasters scale back their estimates of future deficits, as they have suggested they will.

But his ability to ramp up spending in other areas depends most on avoiding a new shock to the economy.

A no-deal Brexit would slash economic growth to just 0.3 percent a year in 2019 and 2020 compared with 1.9 and 1.6 percent if there is a deal, the National Institute of Economic and Social Research estimated on Friday.

Britain’s budget deficit would stop falling and would rise under a no-deal scenario, according to its forecasts.

Looking further ahead, Hammond has suggested he will need to raise taxes to help fund higher public spending.

SIGNS OF PAY “NEW DAWN”

But the prospect of getting controversial measures passed in parliament, where the Conservatives have no outright majority, is probably too daunting at a time of heightened Brexit tensions.

For the BoE, the Brexit stakes are high too.

It has begun raising interest rates from their crisis-era levels and its chief economist has said he sees signs of a “new dawn” for British workers’ pay, long the missing link in the country’s recovery from the financial crisis.

But most economists think it will wait until May to raise rates again, assuming Britain leaves the EU with a deal.

“In any other situation, we suspect the Bank of England would be looking to increase interest rates pretty soon,” ING economists said in a note to clients on Friday.

“But inevitably, Brexit remains policymakers’ number one consideration, and given that there may still be some time before we know for sure whether a deal will be in place before the UK formally leaves the EU, there is a risk growth slows as businesses and consumers grow more cautious.”

Source: UK Reuters