The Budget is a topic that’s been dominating the news recently, with Chancellor of the Exchequer Philip Hammond delivering his speech to Parliament on Monday, 29th of October.
As a contractor, you might be wondering what impact the Budget will have on you when it comes into effect from the new tax year in April 2019. So, we thought it would be useful to run through the key changes for self-employed professionals:
As expected, Hammond said that the Corporation Tax rate will remain at 19%, though it will drop to 17% from April 2020.
Similar to Corporation Tax, the VAT threshold will stay at £85,000 until 2020. This news has been well received by the industry, due to the introduction of Making Tax Digital next year which will require businesses with a turnover over the threshold to submit their information electronically at least every quarter.
National Insurance Contributions (NICs)
In September, the government announced plans to scrap Class 2 NICs for self-employed people due to the ‘potential impacts on some of the lowest earning in society’. From the new tax year, workers will continue to pay either Class 2 or Class 4 NICs. The government announced it’s considering reforms to simplify the system from April 2020.
If you’ve more than one employee or director, you qualify for an employer allowance, meaning the initial £3,000 of your NI bill doesn’t have to be paid to HMRC. From 2020, this benefit will only apply to companies with a NIC bill below £100,000.
A benefit to company owners wishing to sell or close their business, Hammond announced that the 12-month qualifying period will be doubled for disposals after 6th April 2019, unless you stopped trading before 29th of October.
From next year personal allowances will be raised, meaning people will be able to earn more before they start paying tax. According to Hammond, the government ‘want working people to keep more of the money they earn’. The new thresholds will be as follows:
Personal allowance will increase from £11,850 to £12,500
Basic rate tax band will increase from £34,500 to £37,500
Overall increase to the higher rate tax threshold of £3,650 to £50,000
Capital Gains Tax
The threshold for Capital Gains Tax – the tax on profit when you sell something that’s increased in value – is going to be raised by £300 from £11,700 to £12,000.
Of course, we can’t summarise the Budget for contractors without mentioning the elephant in the room: IR35. As expected, the Chancellor announced a delay in the rollout of IR35 to the private sector until 2020.
Currently, it’s a contractor’s duty to determine whether they are operating in or outside of IR35 but, from 2020, it falls to the medium and large businesses employing them. If the contractor is operating inside of IR35, the company – i.e. the end client – will be responsible for assessing each assignment, deducting Income Tax and NICs and paying employer NICs. You can read more on this change here.
With a good handful of changes on the horizon for contractors, pairing with the experts at Intouch Accounting will ensure the transition into the new tax year is a smooth one. To find out more about our services, get in contact today.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.