Chancellor Philip Hammond presented his Autumn Budget 2017 to the House of Commons on Wednesday, 22nd November 2017. It outlines the government’s plans for spending, borrowing, taxes and other fiscal measures. Read our Budget summary to see the key announcements and what could affect contractors and freelancers in the UK.
1. IR35 and the private sector
Many have been speculating that the government would roll out the off-payroll public sector rules to the private sector. Whilst this was not announced in this Budget, it did indicate that a consultation is on the horizon to determine the best solution for increasing compliance in the public sector where contractors are engaged through Personal Service Companies (PSCs).
The Budget cites the following as the next step for IR35 in the private sector: “The government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
It’s possible, as some have been guessing, that any off-payroll rules rolled out to the private sector will not mirror the public sector rules exactly but will be their own separate set of rules. The public sector should not be treated the same as the private sector, and rightfully so.
It is important for micro-businesses and contractors in the UK not to be alienated, and for the impact on entrepreneurship in the UK to be carefully considered before making any changes to IR35 in the private sector.
2. Income tax – the personal allowance and higher rate threshold
The government has decided to raise the personal allowance to £11,850 per year, and the higher rate threshold to £46,350 (England, Wales, Northern Ireland), bringing them in line with inflation.
This will allow basic rate taxpayers to have £350 extra tax-free per year. Higher rate taxpayers will be able to have £350 extra tax-free annually and save 20% tax on £1000 of their annual income, where it previously would’ve been taxed 40% at the higher rate.
The government solidifies its commitment in this Budget to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020.
3. VAT threshold
Rumours were circulating recently that the government would reduce the VAT threshold for businesses to be required to register for VAT.
However, in this Budget, the government will maintain the VAT threshold at its current amount of £85,000 for two years from April 2018.
For the time being, it will instead “consult on the design on the threshold”.
4. Offshore schemes
Time limits for assessing “non-deliberate tax non-compliance” through offshore schemes will be extended following a consultation in spring 2018.
This will ensure that HMRC is always able to assess at least 12 years of retrospective taxes without having to prove that the non-compliance was deliberate.
It’s important that you are aware of the risks that offshore schemes hold to your business and finances, even if they don’t present themselves right away. Please refer to our blog on offshore schemes for more information.
5. National Insurance Contributions
The Budget announced a delay of one year to the abolition of Class 2 NICs, along with other NI measures.
Class 2 NICs refer to the amount of National Insurance you pay if you’re self-employed. If your profits are £8,164 or more per year, you pay both Class 2 and Class 4 NICs as a self-employed person (the threshold for Class 2 is £6,025 in profits per year). Rates for Class 2 NICs are £2.85 per week.
Limited company contractors who operate outside IR35 are able to pay less National Insurance by paying themselves through a combination of salary and dividends.
However, the abolition of Class 2 NICs will be a welcome change for many contractors and self-employed professionals who do not have this option.
6. The Marriage Allowance
The Marriage Allowance is a government tax break for married couples that allows one partner, who earns less than the personal allowance threshold, to transfer up to 10% of their unused allowance to their partner. This enables their partner to reduce their tax bill by up to £230 in the 2017/18 tax year.
The Budget declared that the government will begin allowing claims for the marriage allowance where one partner has passed away before the claim was made – this could be backdated up to four years.
Around 4.4 million couples in the UK are eligible for this tax break, but only half are claiming the marriage allowance. If you’re a contractor, married, and with a partner with no income or earning less than the personal allowance, you could be eligible.
7. Online VAT fraud
In Finance Bill 2017-18, the government will extend HMRC’s reach in online marketplaces to crack down on online VAT fraud. The aim is to tackle the UK’s ‘hidden economy’ and force all online traders to pay VAT in the UK where it is due rather than hide behind shell companies.
The government will also look at ‘split payment models’ to reduce online VAT fraud and improve how VAT is collected from online traders.
8. Wages, cost of living and supporting businesses:
This Budget had several measures announced which will be aimed at boosting wages, reducing the costs of living and supporting UK business. For example:
- Fuel duty will be frozen for the eighth year in a row as will alcohol duty
- £2.3 billion will be provided to support businesses and reduce the impact of business rates
- The National Living Wage will increase from £7.50 to £7.83 per hour from April 2018, benefiting approximately 2 million workers. The National Minimum Wage will also increase for each age bracket.
Other announcements in the Autumn Budget 2017 include:
- £155 million investment in HMRC to bring in additional resources and new technology
- Setting aside an additional £3 billion for the government to ensure a smooth exit from the EU
- Providing over £6.3 billion of new funding for the NHS
- Increasing the National Productivity Investment Fund from £23 billion to £31 billion
- Permanently exempting first time home buyers from stamp duty for properties up to £300,000
Do you have any questions on what you’ve read in this Autumn Budget summary? Feel free to contact us or give us your thoughts by leaving a comment below.