Budget 2017 is in, and as taxpayers across the UK study the details to see how they are affected, what the budget means for contractors will be a particular concern for many self-employed professionals and their advisers.
Changes to the IR35 tax legislation went largely undiscussed in the budget, but reforms are imminent, and the responsibility for paying correct tax and National Insurance contributions will shift from individuals to employers and agencies in respect of public sector work. Contractors can expect a degree of upheaval as the changes take effect, and some may feel unable to continue working on public sector contracts.
In the aftermath of the budget announcement on March 8th, a significant development has been the announcement by Chancellor of the Exchequer Philip Hammond that the proposal to raise National Insurance contributions for the self-employed has been dropped. Conservative backbenchers in parliament had criticized the chancellor for a move seen as breaking a pledge in the party’s 2015 election manifesto not to raise National Insurance, income tax or VAT levels. If implemented, the National Insurance proposal would have seen Class 4 contributions rise from 1 percentage point to 10 percent beginning April 2018, with an additional rise to 11 percent in 2019, to bring them closer to the 12 percent paid by employees.
The National Insurance reversal is good news for contractors, but less welcome has been the announcement that the waiver for tax-free dividends previously set at £5,000 will instead be £2,000 from next April.
For those workers with families, there was positive news in the announcement of a £2,000 voucher for childcare in respect of those with children under 12. The availability of a free childcare entitlement totaling 30 hours per week for three and four-year-olds is another welcome development. The self-employed will also be relieved to find that fuel duty is to be frozen at 57.95 per liter, given the often frequent need to travel between jobs. The registration threshold for VAT is to be increased from April to £85,000, compared to the current level of £83,000. This may well have an impact on contractors, especially those who are relatively new to self-employment and are approaching the threshold at which VAT kicks in.
One thing that remains unchanged in the post-budget environment is contractor pay and the obligation to file and pay their taxes. That can be an administrative burden for some, but help is at hand thanks to the services of umbrella companies. Using an umbrella company allows contractors to move freely between different assignments safe in the knowledge that invoices will be raised on their behalf and that correct PAYE and Employer and Employee National Insurance are deducted at source.
Contractors who are unsure of their tax status and requirements post-budget are advised to talk to their financial adviser. The self-employed should arm themselves with as much knowledge as they can about their finances and put in place long-term planning for a secure future, bearing in mind that there will be a further budget announcement made in the autumn.