On Wednesday 8th March 2017 the chancellor of the exchequer Philip Hammond delivered what is set to be the last Spring budget – from now on the budget will be an annual event held in the Autumn.

In this article, we cover the key changes from the budget that affect contractors, freelancers and small business over the coming years.

Spring Budget 2017

Personal Allowance

The amount that an individual can earn tax free will rise to £11,500 from 6th April 2017 (currently £11,000).

This continues the general trend to increase this allowance year-on-year and the allowance is expected to reach £12,500 by 2020.

Higher rate tax threshold

The point at which income moves into the higher rate tax band has increased by £2,000 to £45,000 from 6th April 2017, unless you are a Scottish resident tax payer for whom it will remain at £43,000.

As with the personal allowance, further increases are expected to this threshold over the coming years with a government target of £50,000 by 2020.

National Insurance

It was the proposed changes to National Insurance for self-employed individuals that  grabbed the headlines from this budget, however the government have since announced that the proposed increases to self-employed class 4 National Insurance from April 2018 will not happen after all.

Class 2 National Insurance is still to be abolished from April 2018.

Up until that date the rate has increased slightly from 6th April 2017 and will be paid at a rate of £2.85 per week (currently £2.80) for self-employed individuals on profits of over £6,025 (currently £5,965 for 16-17).

With regards to Class 4 National Insurance for the self-employed, for 17-18 these will calculated at 9% on self-employed profits between £8,164 and £45,000.

Corporation Tax

The headline rates of corporation tax are set to reduce.

From 1 April 2017 company profits will be taxed at a new rate of 19% (down from 20% currently).

This rate is proposed to fall further still to 17% from the tax year beginning 1 April 2020.

Dividend Allowance

The dividend allowance currently allows the first £5,000 of dividends that would otherwise be taxed to be paid tax-free.

This is remaining at this level for the 2017/18 tax year but will decrease to £2,000 from 6th April 2018.

If you are unsure of the optimum level of dividends to take from your company please see the guidance on our recent blog here.

VAT

There is both good news and bad news in regard to VAT changes.

The good news is that the registration threshold has increased by £2,000 to £85,000 from 1 April 2017.

The bad news is that there are changes to the way the VAT flat rate scheme operates, with the introduction of a new category of trader called a ‘limited cost trader’ with a VAT flat rate scheme percentage of 16.5%.

For most freelancers contractors and small service businesses, this will mean they are likely to be better off leaving the flat rate scheme and moving to the standard VAT scheme. More on this in our article here.

IR35

There are major changes to the way the IR35 rules will operate for people working through their own personal service companies (PSC’s) within the public sector from 6th April 2017.

This is quite a complex area and may lead to more contracts being caught by the legislation.

There is some guidance from HMRC here.

Making Tax Digital

There was a slight delay announced in the budget as to when the self-employed with profits below the VAT threshold will need to start quarterly reporting. This will now be April 2019 as opposed to April 2018.

If you wish to know the current position with regard to Making Tax Digital please see our recent blog.

 

 

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