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Breaking The 2017 Spring Budget Down For Contractors & Freelancers
With a flourish, our Chancellor of the Exchequer delivered his red briefcase to Parliament, setting out the government’s economic plan for 2017. The Conservatives have previously been in support of the self-employed; this class of workers, however, will feel the sting of Phillip Hammond’s new measures keener than most.
In a bid to balance the country’s books, tens of thousands of contractors and freelancers will be under harsher tax and National Insurance legislation. If you’re concerned about what Hammond’s speech means for you, or are still digesting his implications, then we’re here to paint a clearer picture of the Spring Budget.
A lower dividend threshold
Chief amongst the Chancellor’s outline is a reduction in tax-free dividends i.e. the amount of money you’re allowed to pay yourself, through incorporated shareholding, that demands no tax whatsoever.
Previously, the limit was set at £5,000, meaning you could take this amount as a dividend from your limited company each year, and retain all of it for yourself. The Budget has chopped it down to £2,000 – a massive subtraction, one that’ll certainly impact the lower end of the contractor pay scale.
It comes as a surprise, since George Osbourne only set the 5K threshold a year ago to assist growth amongst the self-employed. Hammond’s proposals seemed to suggest that investors were the winners in the old scenario; while this may be true, the cost to modestly paid contractors is undeniable.
Higher Class 4 NI percentages
The Class 4 bracket of self-employed workers – that is, anyone earning over £8,060 a year in profits – has received a slight (but significant) change. Instead of contractors and freelancers enjoying a 9% NI contribution, they will, from April 2018, fork out 10% instead. That roughly equates to £240 less in your pocket.
Furthermore, the percentage will creep higher from 2019-20, up to 11%. So in a mere two years, the average self-employed worker will lose £500 annually, which they might otherwise have put towards living costs or business accessories.
VAT on the rise
Another key part of the Budget was shifting the VAT registration benchmark from £83,000 to £85,000. CCH Daily reports that this will de-qualify 4,000 independent businesses from registering in the 2017-18 cycle.
It could vastly affect your reputation when dealing with wealthy clients. To them, being VAT certified shows that you are a serious, established player in the industry. Some freelancers and contractors (again, incorporated) could be inches away from achieving VAT status, only to have their ambitions pulled back until that extra £2,000 is hit.
Making Tax Digital
Lastly, there’s going to be another full year before HMRC’s Making Tax Digital Scheme is rolled out nationwide. Such a decision falls on the government’s inability, so far, to trial and stabilise their online tax submission process; at least the self-employed have more time to understand the new, quarterly payments that’ll come into force, and the erasure of paper assessments.
The Spring Budget has definitely changed the state of play for freelancers and contractors who, officially, have less of a leg to stand on than they once did. It’s vital to remain ahead of the game to safeguard your business, and your future as a whole.
Contact Bright Ideas on 0161 669 4221 or email info@biaccountancy.com to hire a thorough, up-to-date accounting team for your personal venture’s success.