Chancellor Philip Hammond made his first speech as Chancellor today and Clearways Accountants were watching the TV to see if there were any significant changes in tax or National Insurance that our contractor and small business clients should be made aware of.
The biggest change is the proposal to amend the Flat Rate Scheme (FRS) for VAT…
The consultation has not been published but in outline the Treasury believe the scheme has been abused and they want to stop small businesses making money on the scheme. The press release states that for companies on the FRS with purchases of goods of either:
- less than 2% of VAT inclusive turnover; or
- greater than 2% of VAT inclusive turnover but less than £1,000.
then the taxpayer will need to be classified as a limited cost trader and the Flat Rate will be 16.5%. The maths on this would mean that on an invoice of £1,000 VAT charged and collected from your customer would be £200 (at 20%). The VAT paid to HMRC would be £1,200 x 16.5%=£198
It is not clear whether this is goods alone or whether services can be included. The press release states that capital goods and travel and subsistence would be excluded from the definition of goods. This may mean that for a number of contractors their days on the FRS are over and they would be better completing standard VAT Returns. We will be making a representation to HMRC on this matter.
Off-payroll working in the public sector…
The Government is going to reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. This implies IR35 legislation will be applied to all public sector contracts regardless of duration and amount. We will review the legislation when it is published.
Other key amendments…
- National Insurance – The starting level for National Insurance for employers and employees is to be aligned. This will have no effect on most contractors, as most contractors will take a salary equal to the employee’s threshold.
- Personal allowance and tax thresholds – The Government has restated its commitment to a personal allowance of £12,500 and a higher rate threshold of £50,000, by the end of this Parliament. Next year the personal allowance will be £11,500 and the higher rate threshold £45,000.
- Class 2 National Insurance – will be abolished from April 2018.
- Termination payments – From April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer NICs. The first £30,000 of a termination payment will remain exempt from Income Tax and National Insurance.
- New property and trading allowance – New tax allowances for property and trading income, will be created of £1,000 each. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will also apply to certain miscellaneous income from providing assets or services.
- Corporation Tax rates – as determined by the previous Chancellor corporation tax rates will be cut to 17% by 2020.
As always these days, the Government applauds the UK’s flexible workforce and then penalises people for taking the risk of setting up a business on their own!
If you would like any information on how these changes could affect you and your business, then please contact Clearways Accountants on 01737 244298.
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