Once again, Contractors sat yesterday with baited breath to see how the secrets of Philip Hammond’s red box would affect them. In his first Budget since the government lost their majority in the general election, it was good to hear the Chancellor affirm his commitment to small businesses, recognising them as the backbone of our economy and praising them for their “vibrancy and resilience”.
The big news of the Budget was the chancellor’s announcement that the government intends, during 2018, to consult on the extension of the public sector IR35 rules into the private sector, says Helen Christopher at Orange Genie.
This consultation will be the opportunity for businesses and individuals to comment on the impact of such an extension to the private sector. Given the events since April, the stories of under resourced and incomplete projects, contractors leaving site and flocking to the private sector we can only imagine at this stage the potential problems this may cause contractors and freelancers providing their services to thousands of larger businesses in the UK economy. Aside from the impact the changes may have on getting business done, in a time when the chancellor has stressed the need for the UK to improve productivity, enforcement problems will surely follow.
Let’s hope the chancellor and his team remember the contribution made by small business to our economy when listening to feedback and that whatever they decide to do, they avoid damaging the same businesses that today they recognise as being so vital to our future economic success.
IR35 reform was not the only area contractors had their eye on yesterday. The level of tax free dividends being able to be drawn from a PSC remains at £2,000 and whilst not a large amount we should probably be grateful that this has not been reduced further.
There was potential good news for the IT and technological industries. The chancellor recognised the importance of this industry in our future prosperity and is investing heavily to support these businesses. Many such businesses rely on the expertise of contractors so this should provide some security with regards to the availability of contracts and the need for temporary resources.
Take home pay both for PSC contractors and the self-employed will continue to rise with the Personal Allowance for 2017/18 set to be £11,850 and the higher rate tax threshold rising to £46,350. The chancellor reaffirmed his commitment to increasing the Personal Allowance to £12,500 by 2020. For self-employed contractors Class 2 NIC remains in place for another tax year and the increase in Class 4 rates has been scrapped.
Corporation tax rates will remain unchanged at 19% for the 18/19 tax year and the planned reduction to 17% by 2020 remains intact further demonstrating the government’s commitment to Businesses in the UK.
Prior to the budget, rumours suggested that the turnover threshold for VAT registration may be significantly reduced in line with other European countries. The chancellor has actually decided to freeze the registration threshold at £85,000 for a two year period whilst he takes further advice on this area. This decision also impacts the implementation of the Making Tax Digital (MTD) roll out that is delayed to April 2019 and will affect only those businesses whose turnover is above the VAT threshold.
Much was made of the need to provide affordable homes to more people and some contractors will be pleased to see that stamp duty has been abolished for first time buyers on house purchases up to the value of £300,000 or on the first £300,000 on properties value up to £500,000 in areas where house prices are significantly higher such as London. Is now the time to make your first purchase?
And finally, the chancellor reaffirmed the government’s commitment to anti avoidance legislation and to stamp out non-compliance. Whist much was made in the speech of high profile digital companies and their tax avoidance techniques, they are not letting up focus on other areas. HMRC are increasing their compliance activity with regard to disguised remuneration schemes and are beginning to have some success in closing these down and collecting large sums of tax. If you have been party to one of these schemes previously, be warned that HMRC are closing in. From April 2019 contractors with an outstanding loan from one of these schemes will face a new additional loan charge as part of their tax liability, in addition to potential interest and penalty charges. It’s worth remembering the old adage, that if the scheme looks too good to be true it probably is! If you are currently engaged with any such loan schemes now is the time to take action.
So despite the pundit’s worst fears, it appears that the budget brings little change to contractors for the foreseeable future, but it still makes for interesting times ahead. For now it looks to be “business as usual” for the next twelve months as we see where the governments consultation and polices take them.
More on the Autumn Budget and news.