Contractor industry in 2017

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Here’s what to expect from the contractor industry in 2017

Published on Wednesday, December 28, 2016

Written by Alex Cadman

With tax legislation overhauls confirmed in the Autumn Statement, including changes to IR35 for the public sector and a new VAT Flat Rate, it’s good sense as a contractor to be aware of what’s coming in the New Year.


It seems just yesterday that we were predicting and reporting on what will happen to the contractor industry in 2016. As we move into 2017, some things remain true, one of which is that skills shortages for certain industries is still present and increasing.

However, government initiatives such as changes to IR35 for off-payroll workers in the public sector are changing the landscape of contracting for the New Year.

What’s in store for you as a contractor in 2017? Find out below.

Opportunities for contractors in IT and construction are on the rise

According to a report by Manpower, which conducted a survey of 2,100 private sector employers, hiring optimism in the New Year is strong despite Britain’s imminent exit from the EU and rising costs of hiring non-British workers.

The survey also reported that there is a skills shortage in the building and construction sector, which aligns with our previous post highlighting the increase in construction activity in October.

There is also a continuing skills shortage felt in the IT and tech industries, as we reported on earlier in the year, and firms are desperately trying to fill these gaps with highly skilled temporary workers. Demand for both permanent and temporary IT and construction workers is likely to become clearer in 2017 as the Chancellor’s pledged infrastructure funding is put into action.

But what about the government’s movements to increase tax revenue from the self-employed? These measures seem to effectively devalue what it means to be an independent contractor or freelancer, yet market demand means contractors such as yourself are going to be relied upon more than ever in 2017 to fill crucial skills gaps and alleviate recruitment problems.

The effect on the contractor industry is unclear, but for now it’s important to know what the incoming changes are:

Changes to IR35 for off-payroll public sector workers

From April 2017, contractors and freelancers working through an intermediary in the public sector will no longer be responsible for determining their own IR35 status. Draft legislation published on 5th December has clarified that the ‘person’ (i.e. agency, public sector body, or another third party) paying the fee to the contractor’s intermediary will be responsible for paying the correct tax and National Insurance contributions on behalf of the contractor. However, it will be the end paying body, which in most cases is the public institution, who will be responsible for determining the contractor’s IR35 status.

If you will be contracting in the public sector from April 2017, you should familiarise yourself with this concept so there are no surprises for you when the new rules come into place. Some contractors who may wish to continue contracting in the public sector once the changes come into effect will have the option to negotiate a higher rate of pay to compensate for any additional tax and National Insurance obligations. Alternatively, some contractors may opt to leave the public sector for the private sector where the new rules do not apply.

The new VAT Flat Rate

A new flat rate of VAT was announced in the Autumn Statement, which will apply to all ‘limited costs traders’ who are registered on the Flat Rate Scheme. A limited cost trader is a business whose VAT-inclusive expenditure is less than 2% of their VAT inclusive turnover in a given accounting period.

The rate is 16.5% and means that many contractors could lose out on an additional 2% VAT saving on their invoices. The next step for contractors who will be affected by this will be judged on a case-by-case basis and no rash decisions should be made at this stage.

Corporation Tax falling to 19%

It’s not all ‘doom and gloom’ for contractors in 2017 – when the Corporation Tax rate shifts from 20% to 19%, and again to 17% by 2020, you will see increased tax savings due to a lower Corporation Tax bill for your limited company.

Increases to personal allowance and higher rate threshold

The government confirmed it would be going ahead with plans to increase the tax-free personal allowance to £11,500 and the higher rate threshold to £45,000 in April 2017. This means more income tax savings for you regardless of how much you earn.

There are a few big changes coming to the contractor industry in 2017. Although your accountant will have the knowledge required for you to navigate the ever-evolving world of contracting, it’s good practice to be aware of what’s on the horizon and to be prepared, so that you can continue to reap the rewards of contracting.

Many professionals fall into contracting and freelancing by chance or circumstance, and others choose to contract as a lifestyle. Whatever your reason may be, contracting can still offer you many benefits over being a permanent employee, such as an increased earning potential and higher flexibility in your career along with more networking opportunities.

Read more about the benefits of contracting, and please leave a comment below if you have any thoughts or comments on the future of contracting in 2017.

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