Spring Budget 2017

The Chancellor Philip Hammond has delivered his first Budget speech and outlined plans for what he called ‘a fair, stable and competitive tax system’.

In stark contrast to the often celebratory style of his predecessor George Osborne, Hammond was somewhat subdued as he vowed to deliver a Budget fit for a ‘longer term Britain’, post Brexit.

Despite the Office for Budget Responsibility upgrading its growth forecasts from 1.4% to 2%, the Chancellor pledged there is ‘no room for complacency’. ‘Spreadsheet Phil’, as he is becoming fondly known, didn’t disappoint as he pressed ahead with a number of policies announced in the Autumn Statement.

So, which changes will affect you? We have reviewed the detail and put together a short summary of the most relevant issues that affect contractors and small business owners. Keep an eye on our Blog Page over the coming days for further information.

• Income tax rates

From 6 April 2017, the Personal Allowance and Higher Rate Threshold limits will, as planned, be increased to £11,500 and £45,000 respectively. The government reaffirmed its plans to deliver a Personal Allowance of £12,500 and a Higher Rate Threshold of £50,000 by the end of this Parliament.

Hammond also announced a further reform to dividend taxes which will affect contractors working through their own limited company. Currently the first £5,000 of dividends received each tax year are not subject to personal tax – this will be reduced to just £2,000 from April 2018.

What does all of this mean for the new tax year starting in April? Read our handy guide to tax planning in 2017/18 here.

• National Insurance

The Chancellor announced an increase in Class 4 National Insurance Contributions (NICS) for the self-employed. Historically, employed workers paid higher rates of National Insurance in return for a greater entitlement to state benefits.

Since 2016, the self-employed are entitled to broadly the same benefits and as such, Hammond took the opportunity to increase Class 4 NICS from 9% to 10% in April 2018 with a further 1% increase planned in April 2019.

Limited company contractors need not worry about these changes as for NIC purposes, they are not considered self-employed.

• Corporation Tax rates

Reaffirming the Conservative pledge that ‘Britain is open for business’, Corporation Tax rates will fall from 20% to 19% in April this year with further reductions planned to introduce a 17% rate by 2020.

This is a welcome relief for those operating via their own company and goes a long way towards mitigating the impact of the new dividend tax rates.

• VAT

Whilst the mandatory VAT registration threshold will rise from £83,000 to £85,000 in April 2017, most contractors and small business owners will choose to register voluntarily, regardless of turnover.

However, Hammond announced plans to revise the Flat Rate Scheme in his Autumn Statement and a consultation period has recently been concluded. Read our summary of the changes and how they might affect you here.

• Making Tax Digital

Plans to introduce quarterly reporting requirements for businesses continue. However, acknowledging the concerns expressed over the timetable for implementation, Hammond announced a delay of one year for those businesses with turnover below the annual VAT registration threshold.

Despite this concession for smaller businesses, an additional compliance burden is set to come into force for most over the next few years – by 2019 0r 2020 depending on circumstances. We will continue to monitor developments and make announcements when necessary.

• IR35

Although Hammond made reference to reducing the so-called tax gap between the employed and self-employed, there are no new measures surrounding IR35 specifically in this year’s budget.

As expected though, IR35 reforms for public sector contractors go ahead from April 2017. A minor change was announced giving a choice to the end client or agency about whether to take account of any allowable expenses prior to calculating the tax deductions from the contractors pay, but the draft legislation otherwise remains unchanged. Affected contractors still have the right to claim legitimate expenses at the end of each year.

Having tested the new HMRC ESS tool, designed to provide an IR35 assessment based on the answers to a series of stock questions, we are actually quite pleased to report that most professional contractors should pass the test. The fact that the tool essentially bypasses years of case law on IR35 status is another matter entirely. Time will tell how effective the tool is – and whether public sector organisations actually use it.

For those contractors working within the Public Sector, read our blog here which outlines the options available to you.

For private sector contractors, the Spring Budget is definitely a case of ‘no news is good news’.

• SG View

In summary, another mixed bag for contractors and small business owners. Planned increases to dividend taxes will inevitably increase the tax payable but for most, it wouldn’t equate to more than £225 per year. Changes to the Flat Rate Scheme will also claw back some of the benefit from being VAT registered.

However in contrast, increases in the Personal Allowance and Higher Rate Thresholds will allow higher dividend withdrawals without incurring higher rate tax. Furthermore, reducing Corporation Tax rates will certainly help soften the blow.

SG Accounting was established in 1995 to service the accountancy and taxation needs of professional contractors and freelancers.

We are based in Winchester, and also spend much of our time travelling to meet our clients around the UK.  Bringing a true personal service to contractors across the country, we believe in saving you time and tax!

When you call us, you’ll speak to an accountant, not a sales team.

If you would like to discuss any of the issues raised in this year’s Spring Budget, please feel free to call us direct on 01962 867550 or visit our website www.sg-accounting.co.uk.