The Budget and Tax Rate Cards
Autumn Statement 2016
The Chancellor, Phillip Hammond, announced the Autumn Statement on 23th November. There has been much speculation in the press in recent weeks regarding the impact that this announcement will have on contractors and freelancers, and it did not disappoint.
The two key announcements, in our opinion, are as follows:
Public Sector Contracting
Following the consultation on off-payroll working in the public sector, the government confirmed that it will reform the off-payroll working rules for public sector workers from April 2017. This will transfer responsibility for determining IR35 status, and paying the correct tax, to the engager closest to the personal service company, i.e. recruitment agent.
In addition to this, the 5% tax-free allowance will be removed for contractors working in the public sector, reflecting the fact that the government believes workers will no longer bear the administrative burden of deciding whether the rules apply.
The change around determining IR35 status and the deduction of tax by the engager was expected, however the removal of the 5% allowance for these workers is unexpected as cost's associated with administering a company will not change.
HMRC will be publishing a new digital tool to assist engagers in determining the IR35 status of any contractors that they engage with, this will improve objectivity in this process. Public sector contractors are by no means guaranteed to be inside IR35 following this process.
VAT Flat Rate Scheme
From 1st April 2017, traders with limited costs will be required to use a new flat rate percentage of 16.5%.
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
- less than 2% of their VAT inclusive turnover in a prescribed accounting period
- greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one full year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
- capital expenditure
- food or drink for consumption by the flat rate business or its employees
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services)
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
In most cases, this will reduce the benefit of using the Flat Rate Scheme to 0.2%. Businesses in this category may be better-off withdrawing from the scheme in order to reclaim VAT on purchases which may prove to be more financially beneficial.
ADDITIONAL POINTS TO NOTE:
- Consultation on the taxation of different ways of working
The Chancellor also confirmed verbally that, in response to technological progress changing the way that people live, and the way they work, that the tax system needs to keep pace. The Office for Budget Responsibility (OBR) has highlighted the growing cost to the Exchequer of incorporation. The Government will now consider how they can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax- base as the economy undergoes rapid change. They will in due course launch a consultation.
- Tax allowance for property and trading income
As announced in the Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services
- Personal Allowance:
The Income Tax Personal Allowance will increase to £11,500 from 6 April 2017, the Chancellor also committed to further increase this to £12,500 by 2020.
- National Insurance:
The Office of Tax Simplification confirmed that the threshold has been aligned at which both employees and employers start paying National Insurance. From 6th April 2017 this will be on weekly earnings above £157.
The total maximum amount that can be paid into an ISA will be increased from £15,240 to £20,000 in April 2017.
Following the Spring 2017 budget, the timetable for budget announcements will change. The Budget will take place in Autumn each year, followed by a Spring statement which is not intended to introduce major legislative changes.
If you would like to understand how this may affect your specific circumstances, speak to one of our expert friendly accountants, on 01253 362062 or email us on firstname.lastname@example.org
Tax Rates & Allowances
We have produced some useful tax data cards which contain the relevant amounts for the tax year. Please click on any of the following links to download one of our free tax data cards: