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Autumn Budget 2017 roundup: Impact on the self-employed and small businesses

Chancellor of the Exchequer, Philip Hammond, has just finished delivering his Autumn Budget. Here are the main announcements that affect the UK’s freelancers, contractors and small business owners.


Off-payroll working (IR35) in the private sector


Despite much speculation, there will be no immediate change for IR35 for the private sector. The Government will consult on extending public sector IR35 rules (introduced earlier this year) to the private sector and will publish findings in 2018.


VAT threshold


Despite rumours of a reduction in the VAT registration threshold, the Chancellor announced this would remain at £85,000.


However, he also announced that he would be looking into possible future changes, saying “I will consult on whether its design could better incentivise growth and in the meantime we will maintain it at its current level of £85,000 for the next two years.”


Income Tax and Personal Allowance


The starting point of the Higher Rate tax band increases to £46,350, while the Personal Allowance goes up to £11,850 – both from April 2018.


Other taxes


No changes were announced by the Chancellor to Corporation Tax, NIC or the annual dividend allowance.


R&D tax credits


An additional £2.3 billion in Research and Development investment was announced. As a result, R&D tax credits will increase to 12% (previously 11%).


Company cars


The existing diesel supplement on tax for company cars will increase by one percentage point. Additionally, people using electrical charging points at work will not be charged benefit in kind tax from 2018.


Fuel duty


Fuel duty will remain frozen for the eighth year in a row. This will, on average, save drivers £160 per year.


National Living Wage


The National Living Wage (NLW) will increase from £7.50 to £7.83 – a rise of 4.4%. If you employ staff aged over 25, you’ll need to ensure you pay them the new rate from April 2018.


Full NLW rate increases are as follows:


25+yrs: £7.83


21-24yrs: £7.38


18-20yrs: £5.90


16-17yrs: £4.20


Apprentices: £3.70


Tax avoidance


A “package of measures” on tax avoidance is planned, aiming to raise tax revenue by £4.8 billion over the next five years. However, the Chancellor didn’t provide any additional information on what this package might entail – we’ll keep you posted on this.


First time buyers


From today, stamp duty will be abolished on properties up to £300,000. Also, the first £300,000 of the purchase price will be excluded from stamp duty when the purchase price is up to £500,000.


Autumn Budget 2017 Q&A


Update: Senior Accountancy Manager Chris Barnard was on hand during our webinar this week to answer questions on the Budget. Here’s what you wanted to know, and our responses.


What are the specific proposed changes for IR35 and how would this impact limited companies for contractors?


At this point it’s just speculation. However, if the changes replicate what came into the public sector from April 2017, it would mean the responsibility for deciding if IR35 applies or not shifts to your agency or end client.


Your company will be paid your day rate with Income Tax and National Insurance deducted as calculated by your agency or end client. You won’t pay any additional Corporation Tax or Income Tax on salary or dividends taken from your company.


 


What should I do if my agency puts me inside of IR35?


If this happens to you, complete HMRC’s IR35 test and show the results to your agency if this shows you as being inside. You then have two options:



  • Negotiate a higher day rate and remain as a limited company

  • Negotiate a higher day rate, and switch to an umbrella company.


How am I paid if inside IR35 and public sector rules move into the private sector?


Your company will be paid based on your normal day rate with less Income Tax and National Insurance. VAT is added to the adjusted amount. You won’t pay any additional Corporation Tax or Income Tax on salary or dividends taken from your company.


 


What impact do you think IR35 changes shifting into the private sector will have on Agency PSL’s? Do you think that they’ll ‘encourage’ contractors/freelancers to only use those that are on their PSL’s, thereby snookering others?


As agencies have different policies it’s difficult to know how they would react to any changes to IR35. Some don’t have a preferred list of accountants and like the contractor to choose the one they want. Others only refer contractors to accountants on their preferred list. Any IR35 change would affect this, but it’s likely agencies will prefer accountants who understand the new rules and have a track record in this area.


What’s Crunch doing on the lobbying front to oppose further IR35 rollout and are you working with other organisations such as IPSE?


HMRC’s announced consultation hasn’t been released yet, but as soon as it’s published Crunch will share it with you. We’ll respond to this in full and in public – please be assured we will seek your input.


 


Is it going to be neutral from a tax perspective if I went permanent?


If the rules that came into effect for public sector contractors are replicated in the private sector, contractors under IR35 will in all likelihood have similar earnings to an employee.


The main difference is that you won’t have employment benefits such as holiday or sick pay. It’s possible that if you became an employee, your equivalent day rate will decrease, so do make sure you consider this in all cases.


What is the Tax Free Dividend allowance for 2018/2019 and 2019/2020?


This is going to drop from £5,000 in 2017/18 to £2,000 from April 2018. At this point there’s been no announcement of what it’ll be from April 2019.


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