The eagerly anticipated 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 contractors and freelancers alike. As there are so many changes coming into effect this April, we’ve summarised the main points from the spring budget which may be more relevant to umbrella contractors below.
Main highlights for umbrella contractors
- The personal allowance you can have before paying tax will go up by £500 to £11,500. The higher rate threshold will also go up from the current £43,000 to £45,000.
- The government will also be introducing the Lifetime ISA this April. It will allow 18-40-year-olds to save around £4,000 each year and in turn, receive a bonus of up to £1,000 every year on top of these contributions. The benefit of the Lifetime ISA is that it can be withdrawn tax-free in order to put that money towards a first home or when you turn 60.
- The National Living Wage will be rising from £7.20 to £7.50 in April, for those aged 25 and over.
- Salary sacrifice will be restricted for items such as computers, gym membership and health screening
- Fuel duty will be frozen for the seventh year.
- The cost of insurance will rise due to an increase in the Insurance Premium Tax from 10% to 12% in June.
Other highlights from the budget more relevant to contractors and freelancers are listed below:
- UPDATE: The government has withdrawn plans to increase Class 4 National Insurance Contributions. Philip Hammond has now stated that there will be no NIC increase in this government.
- 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 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.
- 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.
- In order to simplify tax, the government will be increasing the cash basis entry threshold to £150,000, and exit threshold to £300,000. They will also extend the use of the cash basis to unincorporated landlords. The government will also simplify the rules on capital and revenue expenditure within the cash basis, to make it easier for businesses to work out whether their expenditure is deductible for tax.
- The government will be enforcing a new penalty on any person who has enabled another person or business to use a tax avoidance arrangement which is later found to be defeated by HMRC. The government will also be removing the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangement.
- 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.
- From April 2017, VAT flat rate 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.
- Apprenticeship Levy also comes into effect this April will see businesses pay a levy of 0.5% if they have an annual payroll of £3 million or more.
For the full list of announcements from the budget, please visit the Spring Budget 2017 policy paper.