Budget Update - March 2017
A new chancellor, and a new budget. After the far-reaching changes of 2015-16 - seen as a sustained attack on Britain's temporary and contract workforce, what surprises would Phillip Hammond lay upon an unsuspecting populace?
After savaging the Umbrella model that had been popular with all walks of contractors, The Government have switched their sights to the supposedly rich pickings of the self-employed and those who contract through a Limited Company, also known as a Personal Service Company (PSC).
To be fair, it's not as if the latter group was actually ever out of the Revenue's sights, because with past IR35 changes (coming into force this April) plus the onerous intermediaries reporting requirements, it's clear that successive administrations have considered this another nut to be crushed under their respective sledgehammers.
So the main news, as far as contractors are concerned, is on two fronts and both concern PSC/self-employed: Firstly the reduction from April 2018 of the dividend allowance, from £5000 down to £2000. This in itself is a fairly drastic change, but secondly and bigger in terms of media coverage at least, is the increase in National Insurance Contributions (NICs) for the self-employed. Contractors will be thankful at least that no moves were made to increase the scope of IR35 into private-sector contracts.
The Chancellor, under the guise of making the tax system 'fairer', has drawn a fair amount of flak for moves that essentially reduce the incentives for people who want to strike out on their own and work for themselves. The taxes raised are likely to be at the expense of the famed flexibility of the UK labour market.
A third consideration - not from this budget, but due to hit from April 2017 anyway - are the the Flat-Rate VAT Scheme (FRS) changes. Until this year, many small businesses were able to use to an FRS percentage that meant they often paid less VAT to HMRC than they would have done under standard VAT accounting. Revised thresholds will mean that this is no longer a way for smaller companies to save on overheads, as the governmernt contend that the system was being abused.
It all adds up to a fairly grim budget for those affected, of which there are many. Whilst the end effects may certainly be felt by individuals, there is no doubt that the recent moves will also affect small businesses and recruiters. If you are one of those affected or want more advice on your options, give our team a call on 0333 666 1510