As you are no doubt already aware, the new UK Government delivered its first “Fiscal Event” last week, billed by the press as a mini-Budget. It announced significant changes to the UK tax system, the most relevant of which I have summarised below.
- The basic rate of income tax will be reduced from 20% to 19% from April 2023.
- The additional rate of income tax of 45% will be abolished, meaning that the highest rate of income tax in the UK will drop to 40%. This change will also take effect from April 2023.
- Changes to National Insurance, introduced earlier this year, will be cancelled from 6 November.
- The new Health & Social Care Levy, which was due to replace the National Insurance changes from April 2023, will also be scrapped in the new bill.
- The planned increase in the corporation tax rate from 19% to 25%, which was due to take effect from April 2023, will be scrapped. As a result the corporation tax rate will remain at 19%.
- Recent reforms to the IR35 and off-payroll working rules are being repealed from April 2023. It is under this legislation that many of you hold roles taxed under PAYE despite working in a seemingly self-employed manner.
From April next year, the responsibility for determining whether you are an employee or self-employed for tax purposes is being transferred away from the “engager” (i.e. NHS Organisations) and back into the hands of you, the “worker”.
- In practice, this means that from April 2023, if you pursue the more tax efficient self-employed route but HMRC deem you to actually be working in the capacity of an employee, it will now be you that HMRC pursue for the underpaid income tax as well as employees and employers national insurance contributions. There will also be interest and potentially penalties at stake, which together with the tax, can create a significant liability. It is the extent of this risk that caused most NHS organisations to take a unilateral approach to paying workers via PAYE in recent years.
- The change to this legislation won’t necessarily mean an automatic and unilateral shift out of PAYE, however most public sector organisations will now need to revisit their strategy here.
- Where you are given a choice of continuing under PAYE or receiving gross payments, you will need to be sure of the correct tax status to mitigate your risks. HMRC have a useful online tool here which you can test out as many times as you like and on a completely anonymous basis.
- Where an employment status determination has been issued previously on the basis of an employment relationship, due consideration should be given to this. I.e. Shifting into gross payments would carry significant risk unless coupled with changes to your contractual working relationship.
- Please let me know if you have any questions regarding any of the above proposals.
