Spring Budget 2017 09/03/2017

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The Spring 2017 Budget – What Contractors need to Know

In addition to IR35 reforms, Chancellor Philip Hammond’s Spring 2017 Budget Announcement is due to have further consequences for contractors, including a reduction in the dividend allowance and an increase in National Insurance Contributions.

How will the changes affect contractors?

In summary, these are the changes which will have an effect:

  • A reduction in the tax free dividend allowance from £5,000 – 2,000 from April 2018
  • Class 2 National Insurance Contributions will be eliminated in 2018
  • Class 4 National Insurance Contributions will increase to 10% for those who are self-employed in 2018
  • IR35 reforms to come into force from 6 April 2017.

Reduction in the tax free dividend allowance

Contractors who are part of a Limited company will see a tax free dividend allowance decrease of more than 50%, from £5,000 – £2,000 from April 2018. This is a tax rise of £225 for limited company contractors.

The Chancellor’s belief that two people performing the same work should be taxed the same has come to fruition, stating:

“A strong society requires a tax system that is fair.”

 

National Insurance Contribution changes

From April 2018 there will be an Class 2 National Insurance Contributions (NICs) will be abolished. Class 4 NICs will increase from 2% to 10% with an additional increase of 1% in 2009.

Announcements, such as changes to the flat-rate VAT percentage, personal tax free allowance and corporation tax, made in the Autumn Statement 2016 will come into effect in April 2017. These are summarised as follows:

New flat-rate VAT

There will be an introduction of 16.5% flat-rate VAT from April 2017. This will affect most contractors as it applies to companies with limited costs such as those who are labour-only. This will affect ‘limited cost traders’ whose costs of goods purchased is less than 2% of turnover (or annually less than £1,000).

Personal tax free allowance

This will rise from £11,000 to £11,500 from April 2017. The higher rate tax threshold will also rise to £33,500 from £32,000.

Corporation tax

This will decrease to 19%, commencing April 2017. Over the coming years this will reduce further to 17% by 2020.

IR35 reforms

These will take effect from 6 April 2017. Click here for an overview of the IR35 reforms and how they may affect you.

IR35 affects all IT contractors who do not meet HMRC’s definition of ‘self-employment.’ You can use HMRC’s Employment Status Indicator to determine your employment status.

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