The latest Spring Budget was announced by Chancellor of the Exchequer Philip Hammond on March 8th, 2017, marking the end of the Spring Budget tradition as the government moves to a single annual budget announcement scheduled for Autumn. Despite being the final Spring Budget, a number of important adjustments were announced that will affect freelancers, contractors and small businesses during the next several years.
Personal Allowances
The basic personal allowance of tax-free income will rise slightly from £11,000 to £11,500 as of April 6, 2017. This increase is projected to continue to rise year over year, which should bring the amount up to £12,500 by the year 2020.
Tax Band Thresholds Increased
A much more dramatic change has been implemented in the tax band threshold between the basic rate and the higher rate levels, increasing by £2,000 to £45,000 as of April 6, 2017. However, for Scottish resident taxpayers, the threshold level will remain at £43,000.
This trend is also intended to continue year over year in the same manner as the personal allowance increase, with a projected threshold level of £50,000 by the year 2020.
National Insurance Changes
Of particular note for self-employed individuals were the changes initially outlined regarding National Insurance contributions, but the government has recently done a U turn on their proposed increases to Class 4 payments.
As of April 2017, the rate has increased very slightly from £2.80 to £2.85 per week for Class 2 self-employed individuals on profits over £6025 and Class 4 will be payable at a rate of 9% on profits between £8,164 and £45,000, and 2% on profits over £45,000.
The plan is still for Class 2 National Insurance contributions to cease from April 2018.
Corporate Tax Reductions
Corporation tax rates will be reduced as of April 1, 2017 to 19% from their current level of 20%, and this trend is projected to continue year over year down to a rate of 17% by the April 2020.
Tax-free Dividend Reduction
Perhaps more startling is the announced reduction in the initial amount of dividends that can be taken tax-free. No changes will occur for the 2017/2018 tax year, but as of April 1, 2018 the tax-free amount will be reduced from £5,000 to £2,000.
VAT Changes
The announced VAT changes are a bit of a mixed bag that will probably result in a number of freelancers and small businesses changing their current scheme. The registration threshold has increased by £2,000 to £85,000 as of April 1, 2017, but there are some changes to the existing flat rate scheme. A new category has been established named 'limited cost trader' with a flat rate of 16.5% compared to the current flat rate of 14.5%, which means that moving to the standard VAT scheme will likely be beneficial for the majority of contractors and freelancers.
Making Tax Digital
Self-employed individuals with profits below the VAT threshold will need to start quarterly reporting by April 2019 as opposed to the original date of April 2018,
IR35 Changes
For those contractors currently working in the public sector under their own personal service companies, a number of changes are going to be applied which may directly affect income rates. This area is too complex for the scope of this post, but there is some additional information available from HMRC to help explain the new rules.
Personal Allowances
The basic personal allowance of tax-free income will rise slightly from £11,000 to £11,500 as of April 6, 2017. This increase is projected to continue to rise year over year, which should bring the amount up to £12,500 by the year 2020.
Tax Band Thresholds Increased
A much more dramatic change has been implemented in the tax band threshold between the basic rate and the higher rate levels, increasing by £2,000 to £45,000 as of April 6, 2017. However, for Scottish resident taxpayers, the threshold level will remain at £43,000.
This trend is also intended to continue year over year in the same manner as the personal allowance increase, with a projected threshold level of £50,000 by the year 2020.
National Insurance Changes
Of particular note for self-employed individuals were the changes initially outlined regarding National Insurance contributions, but the government has recently done a U turn on their proposed increases to Class 4 payments.
As of April 2017, the rate has increased very slightly from £2.80 to £2.85 per week for Class 2 self-employed individuals on profits over £6025 and Class 4 will be payable at a rate of 9% on profits between £8,164 and £45,000, and 2% on profits over £45,000.
The plan is still for Class 2 National Insurance contributions to cease from April 2018.
Corporate Tax Reductions
Corporation tax rates will be reduced as of April 1, 2017 to 19% from their current level of 20%, and this trend is projected to continue year over year down to a rate of 17% by the April 2020.
Tax-free Dividend Reduction
Perhaps more startling is the announced reduction in the initial amount of dividends that can be taken tax-free. No changes will occur for the 2017/2018 tax year, but as of April 1, 2018 the tax-free amount will be reduced from £5,000 to £2,000.
VAT Changes
The announced VAT changes are a bit of a mixed bag that will probably result in a number of freelancers and small businesses changing their current scheme. The registration threshold has increased by £2,000 to £85,000 as of April 1, 2017, but there are some changes to the existing flat rate scheme. A new category has been established named 'limited cost trader' with a flat rate of 16.5% compared to the current flat rate of 14.5%, which means that moving to the standard VAT scheme will likely be beneficial for the majority of contractors and freelancers.
Making Tax Digital
Self-employed individuals with profits below the VAT threshold will need to start quarterly reporting by April 2019 as opposed to the original date of April 2018,
IR35 Changes
For those contractors currently working in the public sector under their own personal service companies, a number of changes are going to be applied which may directly affect income rates. This area is too complex for the scope of this post, but there is some additional information available from HMRC to help explain the new rules.
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