Philip Hammond’s first Budget will be delivered on March 8th 2017 and will be the last Spring budget to be delivered by the Government after it was announced during the last Autumn Statement that the Government will move to just one announcement a year. This means that 2017 will be the last year where we will have two Budgets – the final Spring one, as well as the new Autumn one.
From 2018, there will also be a ‘Spring Statement’, which is expected to be a response to the latest forecasts for the economy and public finances.
The March Budget will also take place just weeks before the Government’s own deadline to begin the formal ‘Brexit’ process. The Prime Minister stated that Article 50 would be triggered no later than 31st March.
So after a host of unexpected announcements made in the last Autumn Statement, what can contractors expect from the budget?
Here is a roundup of what we know already and what we would expect to see:
Public Sector IR35 clampdown
From 6 April 2017, end clients / hirers will become responsible for determining the IR35 status of contractors. Following the rule change, contractors deemed to be inside IR35 will have income tax and National Insurance deducted at source.
Those caught by the new rules face a further penalty in that they will no longer be able to write off a flat 5% allowance against their Corporation Tax bills to cover the administrative costs of running a company.
In recent days, three government bodies (SOLACE, the LGA and CIPFA), are all calling for the reform to be delayed. This is unlikely in our view and, at best, we can hope for some adjustment to the legislation for further clarity such as where liability lies.
In addition, anecdotal reports of issues with the IR35 digital tool (the ESS), suggests that the legislation may not be the only thing that’s in need of refining – if these reforms are to succeed from April 6th.
You can read more about what the IR35 reform changes mean to you in our IR35 in the Public Sector blog.
Flat Rate VAT scheme changes for limited companies
The Flat Rate VAT Scheme was implemented to simplify VAT accounting for small businesses. However, the Government believes the system has been taken advantage of and as a result has made changes by removing the FRV benefits for so-called ‘limited cost traders’ from April 1st 2017.
In summary, if you incur very limited expenses in the running of your own Limited Company business, you may have to apply a higher percentage to your turnover (16.5%) than non-caught contractors (who pay 14.5% on the whole).
You can find our more in our dedicated guide to Flat Rate VAT.
Corporation Tax will fall from 20% to 19% from 1st April 2017 and is expected to be cut by 1% in subsequent years before reaching 17% in 2020.
Personal ‘tax free’ allowance
The Chancellor announced in the 2016 Autumn Statement that the rates previously announced for 2017/2018 will remain unchanged:
- Personal allowance increase to £11,500 from April 2017 (£11,000 2016/2017)
- Higher rate tax threshold increase to £33,500 (£32,000 2016/2017)
- Overall increase in total allowances & basic rate threshold to £45,000
- Additional tax rate threshold remains unchanged at £150,000
It was confirmed today that the government will meet its commitment, by the end of this parliament, to raise the income tax personal allowance to £12,500 and the higher rate tax threshold increase to £37,500, meaning individuals will need to earn a total of £50,000 before they incur a higher rate tax liability.
Wednesday is an opportunity for the Government to introduce some new initiatives to support the self-employed and the key sectors in which large populations of freelancers and contractors operate. New initiatives within the digital sector for example will help consolidate demand for contractors and freelancers.
Their expertise and flexibility is vital any time the government wants to deliver digital and project-based work. In the last Budget, the then-chancellor George Osborne announced two £1,000 tax breaks for the ‘gig economy’ related to trading and renting property; his successor would do well to build on these. Likewise, commitment from the government to ‘get Britain building’ included enough affordable homes each year to support families on low incomes would offer a further boost to the construction sector.
Over to you Mr Hammond.