There were no huge surprises in the Budget. A Budget in Phillip Hammond’s own words “…. to prepare Britain for a brighter future.”
The only change that will affect some agency workers operating through their own company is an effective increase in tax on dividends from April 2018.
This was Phillip Hammonds second Budget Statement, following on soon after the Autumn statement last December. As the Chancellor explained then, future Budget Statements will be delivered annually each Autumn. Finance Bills will be introduced following the Budget. The aim will be to reach Royal Assent in the Spring, before the start of the following tax year. The Government’s intention is that this change in timetable will help Parliament to scrutinise tax changes before the tax year where most take effect.
For contractors, what key changes will affect YOU?
NI changes for the self-employed
There was an interesting development in the form of increased NI on the self-employed. This is a strange one. It raises more money for the Government coffers, but actually makes it even more advantageous to work through an Umbrella or your own Limited Company – which is interesting given HMRC’s dislike of the growth of Limited Companies. So using our compliant Umbrella and Limited Company solutions is now an even better option.
The Chancellor has decided that although his “…ambition is for the UK to be the best place in the world to start and grow a business”, he wants to tax dividends further by reducing the dividend nil rate tax band from £5,000 to £2,000 in April 2018. Against this, as the Chancellor pointed out in his speech, Corporation Tax has been reduced so far from 28% in 2010 to 19% from this April, and will go down to 17% in 2020. Overall there is a small effect overall for many people working through their own company, although there will be more tax to pay than last year.
There was nothing really new on Brexit. We can see that costs are increasing, and Mr Hammond confirmed this yesterday. He also asked us to tighten our belts again so we make sure we have enough of a buffer to meet the ongoing cost implications. There is no double guessing this, but the next period is going to be interesting both economically and politically.
Further explanation on these changes:
Last year the Chancellor changed the way dividends are taxed and introduced a tax on dividends of 7.5% for a basic rate taxpayer – over and above a nil rate band of £5,000. In other words, the first £5,000 of dividends were not taxed on the recipient. This year he has decided to raise revenue to fund the measures announced in the Budget by reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.
Whilst the speech referred to a parallel reduction in Corporation Tax (“CT”) rates from 28% to 17%, in fact, the small companies’ rate in 2010 was 21% not 28%! The fact is that for many people working through their own Limited Company, there will be little change from 2010 to 2020. All the changes have done is alter the way in which the tax is calculated. But of course, the headline rate of CT is reduced to 17% – which looks good for the Government.
If you would like further advice on this or want to know how this affects you, please contact us.
National insurance (“NI”) and self-employed workers
The Chancellor has increased NI on self-employed workers from 9% to 10% from April 2018, and by a further 1% in 2019. This does NOT affect you if you work through an Umbrella or your own Limited Company. In fact it makes the comparison much more favourable and only helps demonstrate further that working through a Limited Company intermediary is the best option for most agency workers. That is notwithstanding the proposed change to dividend tax next year.
Working in the public sector
As already announced, most public sector agency workers will pay tax and NI under PAYE from 05 April 2017.
Unless the hirer, the person you work for, has confirmed or you can demonstrate that you are not “working as an employee” and that your contract is not “caught” by IR35, then you will be taxed as an employee. That applies irrespective of whether you work through an intermediary, such as your own Limited Company.
If this affects you and you have not already contacted us to discuss this then you MUST do so before 05 April at the very latest. We do have alternative solutions which we can discuss with you.
VAT and the Flat Rate Scheme (“FRS”)
The change to VAT FRS was also announced last year. Basically, there is little financial advantage for many contract workers remaining on FRS. Again – if you have not already discussed this with us – please do so NOW.
Tax Rates and Allowances
To see the full rates, follow this link:
HMRC tax rates and allowance 2017-2018
- VAT registration threshold increased to £85,000.
- No increase in Vehicle Excise Duty for hauliers and the HGV Road User Levy is frozen. Good news for the haulage and transport industry.
- Some concessions and revisions to the changes in Business Rates and the review is due this year – in order to benefit small businesses.