Autumn Budget 2018

On Monday 29th October 2018 the chancellor of the exchequer, Philip Hammond, delivered the 2018 Autumn Budget.

In this article, we cover the key changes from the budget that affect contractors, freelancers and modern small businesses (our core client base) over the coming years.

 

Autumn Budget 2018

IR35

One of the biggest announcements was that the IR35 changes that were implemented in the public sector in 2017 will roll out to the private sector from April 2020, for end clients that are medium and large in size.

These changes only affect those working through their own limited companies – they do not affect self employed sole traders.

Under the new rules it will be the responsibility of the end client to tell the contractor / freelancer if IR35 applies to the engagement or not, and if it does apply they will deduct tax and national insurance at source.

Under the current rules it is the responsibility of the contractor / freelancer to assess if IR35 applies to an engagement or not.

A consultation is expected to happen in the coming months which will help define exactly how things will work.

The actual method by which employment status is assessed is not changing, so if a contractor is legitimately outside IR35 today, they should continue to be outside IR35 post April 2020.

We will issue further details as they emerge in the coming months.

VAT threshold

The VAT registration threshold will remain at the current level of £85,000 until April 2022.

Personal allowance

The amount that an individual can earn tax-free will rise to £12,500 from 6th April 2019 (currently £11,850).

Higher rate tax threshold

The point at which income moves into the higher rate tax band has increased to £50,000 from £46,350 from 6th April 2019 – however if you are a Scottish resident tax payer you will have to wait to see what your higher rate threshold is for 2019-20 as this is decided separately by the Scottish parliament.

Income tax rates

The income tax rates will remain the same as they are currently which are 20% (basic), 40% (higher) and 45% (upper).

Corporation tax

The headline rates of corporation tax for 2019-20 remain as they are for the current year at 19%.

There are discussions around the proposal for this to fall further still to 17% from the tax year beginning April 2020.

Dividend allowance and taxation

The dividend allowance currently allows the first £2,000 of dividends that would otherwise be taxed to be paid tax-free, this will remain the same for 2019-20.

The dividend tax rates remain the same as they are currently which are:

Over and above the £2,000 dividend allowance any dividend income is taxed as follows:

  • If you have any un-used personal allowance then that element is tax free
  • Any dividends in the basic tax band attract a tax charge of 7.5%
  • Dividends above the basic tax band are charged at 32.5%
  • Any dividends in the upper tax band (£150,000+) are taxed at 38.1%.