That’s our summary of the Autumn budget.
A number of proposals were raised in the press such as lowering the VAT registration threshold and changing IR35 but none have come to pass – at least not yet. So what was said?
The personal allowance
The personal allowance will increase to £11,850 from 6 April 2018 and the basic rate band (including the personal allowance will be £46,350). Currently the amounts are £11,500 and £45,000. For contractors that take a low salary and dividends the benefit will be:
- £127.5 on the increase of the personal allowance; and
- £438.75 on the increase in the basic rate band so that more dividend income is taxable at 7.5%
Although remember that the dividend allowance is to be cut to £2000 (currently £5000) so for contractors that will increase tax by £225. Overall a benefit of £341.25 not massive but better than an increase in taxes which is what we have had over the last couple of years.
The Treasury and the Office of Tax simplification had been considering a reduction in the VAT registration threshold to £25,000. For those contractors who came off the flat rate scheme and de-registered this would have been an administrative headache to go through the registration process (again). The UK VAT registration threshold is currently the highest in Europe and arguments were put forward to suggest that small businesses made a conscious decision not to expand past the VAT threshold in order to avoid the record keeping and filing quarterly VAT returns. That may be true but forcing all small businesses to register seems a disproportionate response. It is good news that the Treasury are going to review the situation and have decided in the short-term to leave the threshold unchanged.
For those contractors that have entered into tax saving schemes the rules on disguised remuneration are getting more difficult to navigate. HMRC recently won their long running case with Rangers Football Club. The amounts received by the players from the trust will be treated as wages and taxed accordingly; the case largely confirmed that it doesn’t matter what the transfer of money is called, when it reaches the player it should be taxed as employment income.
If you imagine that there is a series of transactions from the employer through a series of intermediaries including a trust with the player at the end of the chain. At the moment the income is taxed at the end of the chain.
Now HMRC are consulting on some new legislation that would tax the funds at the beginning of the chain but only if the employing company is owned by the directors and their family (close companies).
The legislation known as IR35 has not changed in a while but those of you who read our blogs (or who contract for one of the many Government bodies) will know that the person who makes the IR35 assessment changed on 1 April 2017. Some Government funded organisations have not even attempted to assess their contractors, for example the NHS, whilst others have undertaken a proper assessment. There have been many reports of contractors at Government agencies, such as HMRC, just walking out on their contracts or demanding an increase of 13% on their day rate to compensate for the national insurance that would be due when working via an umbrella.
There was talk that the same change would be passed through to the private sector. Thankfully this has not happened, at least not yet!
Surely the private sector would not be as bovine as the public sector! It’s not beyond the wit of man, that a private sector company could reduce the number of agencies they use and then insist on a standard contract that is either IPSE derived or reviewed by a barrister.
Class 2 will be abolished but not until April 2019.
Flat rate allowances
For those contractors that claim flat rate allowances for working away from home, no receipts to prove a purchase will be required from April 2019. It will only be necessary that the employer knows the employee is legitimately away from home on business. This is a welcome easing of record keeping.