The future after the Budget announcement
It has been a week since the Budget has been announced and we have had the time to absorb what changes are going to impact contractors. The key factors we believe will affect contractors are as follows:
The Fuel Duty freeze means that this is a small benefit to contractors who often travel hundreds of miles for work and this relief will be good for those looking to keep business costs down.
Personal Tax Allowance has been increased to £11,500 for 2017, a small increase but an increase all the same.
A really positive development in the budget was subject we have we have previously written a piece on which was saving whilst being self-employed. As contractors are well aware, their income can fluctuate meaning that saving can be tricky. The Lifetime ISA that has been announced is to be introduced from April 2017, savers will be able to save up to £4,000 a year with a government bonus of 25%. This ISA can be used for a deposit on a first home or if left until the saver’s 60th Birthday then the money can be withdrawn tax free. For self-employed individuals, they will still able to access the money however will be penalised with a 5% charge and give up the government bonus, plus any interest growth on it.
Those contractors that have a Limited Company, will benefit from the Corporation Tax being reduced from 20% down to 17% but unfortunately this will not come into force until April 2020. Unfortunately, the downside of being a Limited Company seems to be the new dividend tax rate. This new tax will mean that from 2016/17, individuals will have a dividend allowance of £5,000 per year, but suffer higher rates of tax on dividends that don’t fall within this allowance. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
One other change that has been announced is the abolishment of Class 2 National Insurance. This should save self-employed contractors around £134 per year.
Of course not all of the changes have been beneficial to contractors, in fact there are still many points that have been introduced that will negatively impact contractors. For example:
The numerous contractors using “personal service companies” in the public sector have new tax rules from April 2017. What this means it that public sector bodies and agencies will be responsible for operating the tax rules that apply to off-payroll working through Limited Companies in the sector in order to try and tackle the issue of tax avoiders. Nevertheless, the majority of PSC users are actually genuine contractors who are simply using PSC to work in a flexible manner rather than be employed and these new rules will highly likely deter contractors from taking on public sector contracts, for example the HS2 and Crossrail 2, depending on the contractor’s skill set. These new tax rules are only set for the public sector therefore the private sector & the IR35 legislation, will remain unchanged.
Around 270,000 freelancing mothers are also going to feel aggrieved as they will still not receive the same amount of maternity pay as employees despite petitioning.
Also announced was an increase on Insurance Premium Tax, this is not only going to drive up the cost of insurance policies but that will mean the running cost of small businesses will also increase because of this. This change does seem to undermined the government’s stance on helping small businesses.
Then of course we then come to the Travel and Subsistence tax relief, this was previously announced that T&S was due to be eliminated in only a few short weeks as of April 2016. As you will be aware this will affect any contractor who use an Umbrella Company, any contractors who are subject to the Supervision, Direction or Control (or the right of SDC) of any person but this will also apply to PSCs who are caught by IR35. Meanwhile those contractors who use PSC and are not caught by IR35 can continue to claim T&S via a self assessment tax return.
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