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Spring Budget 2017

Spring Budget 2017: Review

Chancellor Philip Hammond announced his first and last Spring Budget yesterday and it has since been faced with a backlash of criticism from the press and the 2.5 million self-employed workers due to be hit hardest by his policy changes.

We take a look at the key announcements for contractors.

NICS

Mr Hammond confirmed that the abolition of Class 2 NICs for the self-employed (originally announced by the chancellors predecessor in 2016) will continue to go ahead as planned in 2018. In addition to this, Class 4 National Insurance Contributions will rise by 1% from 9% as it is now to 10% by April 2018, with a further 1% increase in April 2019. This equates to an average increase in taxes of £240 a year for the millions of self-employed workers effected.

The combination of the abolition of Class 2 and the Class 4 increases will affect any sole trader earning over £16,250.

 

Dividend Allowance

Mr Hammond announced a reduction to the £5,000 tax-free dividend allowance for contractors with their own personal service company. The allowance was first introduced by George Osborne only as recently as July 2015 as a trade-off for the tax rates on dividends being hiked. The allowance will now be reduced to £2,000 by April 2018, resulting in a tax increase of £225 per year for limited company contractors.

 

Making Tax Digital

For all businesses with a turnover less than the VAT threshold (£83k) the government will now delay its Making Tax Digital initiative until April 2019.

 

Other Announcements

  • Personal allowance will rise for the seventh year in a row to £11,500 and will increase as planned to £12,500 by 2010.
  • Corporation tax will decrease to 17% as planned by 2020, starting with a drop to 19% in April 2017.
  • There will be a review of taxation of North Sea oil producers later in the year.
  • Transport spending of £90m will be given to the north of England and £23m to the Midlands to address pinch points on roads.
  • £270m will go to new technologies such as robots and driverless vehicles, as well as £16m for 5G mobile technology and £200m for local broadband networks.
  • An extra £2bn will be given to social care over next 3 years with £1bn available instantly within the next year. £100m will be used to place more GPs in accident and emergency departments in time for the next winter and an additional £325m will be made available to allow the first NHS Sustainability and Transformation Plans to proceed.

Pre-announced changes due in April 2017

There was one significant upheaval to the tax system affecting contractors in April that was not mentioned in the Spring Budget: The IR35 Reform in the Public Sector. The rule change will go ahead as planned, with the public sector authority taking on the responsibility for determining the IR35 status of limited company workers on government contracts. The business which makes payment to the limited company (end client or agency) will then be responsible for the correct payment of taxes and the reporting thereof.

Contracting Scout have produced a guide on this topic offering practical advice for those likely to be impacted by these IR35 changes.

 

Our View:

In comparison to previous years this was a relatively standard budget with few big policies, but what stood out was the concerted attack on the self-employed who have been deemed the “biggest losers” of the Chancellors Budget. The changes to National Insurance Contributions also come as a direct contravention of promises originally made in the conservative manifesto, and both this and the reduction to the dividend allowance were announced without any form of consultation, although this was promised at the Autumn Statement.

Further reviews from Contracting Scout are likely to follow as news of the Budget dominates the headlines. However, we plan to wait for the updated Finance Bill to be published on 20th March before providing more detailed comment on individual policy changes.