Chancellor Philip Hammond’s eagerly anticipated first and last Spring Budget has already come and gone and whilst we were expecting most of the changes, there were a few announcements which will be affecting the self employed. A rise in National Insurance Contributions was announced, which controversially breaks a key pledge made in the Conservative manifesto. It is estimated that 2.5 million people will be affected by this change and the reaction has significantly overshadowed the Chancellor’s main objective, of delivering a fiscally tight budget to prepare the British economy for Brexit.
With so many changes coming into effect this April, we’ve summarised below the main highlights from the Spring Budget which may be more relevant to contractors and freelancers:
● the main rate of Class 4 National Insurance contributions will increase from 9% to 10% in April 2018. It will then increase once more to 11% in April 2019 bringing it much closer to the 12% that the employed currently pay. The government will abolish the Class 2 NIC’s from 2018 – the self employed currently pay a flat-rate charge.
● the dividend allowance will be reduced from £5,000 to £2,000 from April 2018 which will affect many contractors who are paid from dividends.
● the personal allowance will go up by £500 to £11,500. The higher rate threshold will also go up from the current £43,000 to £45,000.
● as mentioned previously in the Autumn Statement 2016, the government will cut the rate of corporation tax to 19% from this April and then once more to 17% in 2020.
● Making Tax Digital – The government will provide an extra year until April 2019 before making tax digital is mandated for unincorporated businesses and landlords with turnover below the VAT threshold.
A few other changes that will be of interest to contractors and freelancers include:
● the amount of tax relief that buy-to-let landlords can claim on mortgage interest payments will be cut over a four-year period starting from this April.
● the amount that can be saved in a tax-free Individual Savings Account (ISA) is rising from £15,240 a year to £20,000.
Finally, as a reminder, we’ve listed some of the key legislation changes coming up that will affect many contractors:
● from April 2017, flat rate VAT will change to 16.5% for limited cost traders.
● off-payroll rules affecting public sector contractors will come into effect from April 2017. We are expecting the final legislation to be released later on this month.
As the Budget continues to be a talking point ContractingWISE will be providing further comment on the subject. However, until the updated Finance Bill is published on 20th March we will not be providing any more detailed comment on individual policy changes.