Aside from IR35 being extended to the private sector in April 2020, what other changes were revealed for contractors in the Budget 2018 report? From Entrepreneur’s Relief reform and VAT registration frozen thresholds to Personal Allowance and Higher Rate Thresholds. We’ve done a quick summary of what’s most important for contractors.

 

Entrepreneurs’ Relief reform

Chancellor Philip Hammond announced that Entrepreneur’s Relief will remain, but the conditions to qualify for this have become stricter. The Government will not be extending the minimum qualifying period from twelve months to two years. Hammond stated, “encouraging entrepreneur members must be at the heart of our dynamic economy, so I will retain entrepreneurs relief.”

 

From the Budget 2018 report:

“To support longer-term business investments, from 6 April 2019 the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months.”

 

Personal allowance and higher rate tax thresholds increased

The personal allowance will rise to £12,500 from April 2019 and this means a basic-rate taxpayer will pay £1,205 less tax in 2019-20 than in 2010-11. The higher rate tax threshold will also increase to £50,000 in April 2019, a year before expected. It’s been estimated that one million fewer people will pay the higher rate than in 2015/16.

 

From the Budget 2018 report:

“The Budget announces that the government will meet its commitment to raise the PA to £12,500 from April 2019, one year earlier than planned. The threshold will remain at the same level in 2020-21 and then increase by CPI. The £650 increase to the PA means that in 2019-20 a typical basic rate taxpayer will pay £130 less tax than in 2018-19 and £1,205 less tax than in 2010-11. This will increase the number of taxpayers taken out of income tax since 2015-16 to 1.74 million. The government will also meet its commitment to increase the HRT to £50,000 from April 2019, one year earlier than planned. The threshold will remain at the same level in 2020-21. This means that there will be nearly one million fewer higher rate taxpayers than in 2015-16. Overall, 32 million individuals will see their tax bill reduced in 2019-20 compared to 2015-16.”

 

VAT – registration threshold frozen

The decision to freeze the VAT threshold at the current level of £85,000 was well received by the contractor industry. The ATT commented: “We welcome the announcement that any change to the VAT threshold has been delayed for two years, especially with the stress many businesses face already because of on-going uncertainty on Brexit and having to manage the transition to Making Tax Digital for VAT from April 2019.”

While the Federation of Small Businesses said: “The chancellor was correct to resist any moves to lower the threshold at which point businesses begin to pay VAT, which would have extended a significant administrative burden to many more small firms right across the UK.”

 

From the Budget 2018 report:

“Alongside the Budget, the government is publishing a response to the call for evidence on the design of the VAT threshold. The responses to the call for evidence did not provide a clear option for reform. The VAT threshold will therefore be maintained at the current level of £85,000 for a further 2 years until April 2022. The government will look again at the possibility of introducing a smoothing mechanism once the terms of EU exit are clear.”

 
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If you manage a limited company and are concerned about IR35, K&B Accountancy Group, offer a package designed to support contractors against IR35. The Essential IR35 package specifically includes IR35 advice, review and protection from their partners and experts Bauer & Cottrell. Get in touch today for more information.