It appears that Chancellor Philip Hammond has set his sights on the self-employed as he aims to extinguish “tax-motivated incorporation”, announced in Budget 2017 today, 8th March.
We’ve summarised the key points of Budget 2017, and how you’ll be affected as a contractor or freelancer:
Class 4 National Insurance contributions (NICs), which are based on a person’s level of self-employed profits, is to increase from the current rate of 9% to 10% in April 2018, and then again to 11% in April 2019. Those affected by this change will allegedly be 60p per week worse off.
Afternote: one week after the Budget announcement, the Chancellor u-turned on this decision, and this is no longer coming into effect.
Class 2 NICs will still be abolished, meaning the self-employed will only pay Class 4 NICs.
The tax-free dividend allowance for company shareholders will reduce from £5,000 to £2,000 from April 2018. Therefore, any dividends above £2,000 will be subject to 7.5% tax if they’re within the basic tax rate band, and 32.5% for dividends reaching the higher rate tax band.
Changes to IR35 for off-payroll workers in the public sector are moving ahead as planned, with 2017/18 forecast tax receipts for income tax, National Insurance, Corporation Tax and VAT for the public sector totalling £500 billion.
From 6th April, an individual working in the public sector through their own limited company will no longer be responsible for determining their IR35 status. It will be the public sector body which is responsible for deciding if IR35 applies, and the agency, public sector body or other third party must deduct the necessary tax and National Insurance if it does apply.
The government estimates that this will affect 30,000 limited companies who enter into contracts or receive payments for an existing contract on or after 6th April.
The government recently released their IR35 tool to help a limited company’s ‘fee-payer’ determine its IR35 status.
A positive for contractors and freelancers in this Budget is that Corporation Tax is reducing as planned to 19% this year from 1st April, with plans to cut it down further to 17% by 2020.
The personal allowance for income tax is increasing for the seventh year in a row to £11,500 from £11,000, whilst the higher rate threshold is increasing to £45,000. This will cut income tax payments for 31 million taxpayers in the UK.
From 1st April, the VAT registration threshold will rise from £83,000 to £85,000 meaning thousands of contractors and small businesses will be exempt from mandatory VAT registration. The threshold for being able to deregister from VAT is increasing from £81,000 to £83,000.
Other Budget announcements
- The UK was the second-fastest growing G7 economy in 2016, and it is expected to grow by 2% in 2017
- Employment has reached a record high of 31.8 million people
- Inflation is forecast to rise to 2.4% in 2017/18
- The UK’s debt is at £1.7 trillion (£62,000 for every household in the UK)
- Borrowing is forecast to reduce by approximately three-quarters for the tax year 2016/17
Making Tax Digital
- The Chancellor has delayed the introduction of Making Tax Digital until 2019 for those under the new VAT threshold of £85,000
- There will be a new penalty for those who enable a person or business to use a tax avoidance scheme that is later defeated by HMRC
- VAT will begin to be charged on mobile phone calls outside the EU
Spending and Investment
- The government will invest £300 million to support PHD places and fellowships in science, technology, engineering and maths subjects
- A £216 million increase in investment of schools
- A £100 million investment to place more GPs in A & E departments for winter
- An extra £2 billion for social care over the next three years
- £90 million in transport spending to be extended to the north of England, and £23 million for the Midlands
- £20 million in funding to support anti-violence against women and girls campaigns
- £5 million in funding to support people returning to work after a career break