On 8th March 2017, Philip Hammond delivered the much anticipated Spring Budget 2017, outlining tax and welfare reforms, as well as changes to public service spending. This is the last Spring Budget as all future Budgets will take place in the Autumn.
It is clear that one of the Government’s aims of the Budget is to create a “fairer balance” between the way different business structures are taxed. There is a move to create a greater equality between the tax paid by employees, the self-employed and limited companies – but this Budget only goes some way to do that.
I have summarised the key points that will affect small business, freelancers and contractors below.
The corporation tax rate will be cut from 20% to 19% from April 2017. This means that the UK will have the lowest corporate tax rate in the G20. There are further plans to reduce this to 17% by 2020.
Class 4 NI (Self-Employed)
The rate of Class 4 NI paid by self-employed individuals (this is the NI paid on the annual profits), will increase from 9% to 10% from April 2018, with a further increase to 11% from April 2019. (Please remember that if you are a director/owner of a limited company, you are not treated as self-employed, and therefore not subject to this NI).
VAT Flat Rate Scheme Changes
The proposed changes (see our earlier article) to the VAT Flat Rate Scheme – introducing a new “limited cost trader” concept will take effect from 1 April 2017 and the finer details have been released. This will have a significant impact on contractors using the scheme and we will contact our affected clients direct shortly.
VAT Threshold Changes
From April 2017, the registration threshold will increase to £85,000 (was £83,000) and the de-registration threshold will increase to £83,0000 (was £81,000).
Public Sector IR35 Changes
The proposed changes to public sector contractors working via umbrella companies or personal service companies will go ahead from April 2017. More details on this can be found here.
Dividend Allowance Changes
The dividend allowance, first introduced this year (2016/17), providing a tax-free allowance for the first £5,000 of dividends income, will be reduced to £2,000 from April 2018. You can still make use of the £5,000 allowance for 2016/17 and 2017/18.
The personal allowance will rise from £11,000 to £11,500 from April 2017. This means an additional £500 of tax-free income per person. This is expected to rise to £12,500 by 2020.
Higher Rate Threshold
The higher rate threshold (where income becomes taxed at the higher rate) will rise from £43,000 to £45,000. This means more income will be taxed at the basic rate (good news)!
As always, if you have any queries, or wish to discuss how any of the above will impact you, please get in touch and we will be happy to help.