Philip Hammond delivered the Autumn Statement 2016, his first as Chancellor of the Exchequer and we’ve summarised the main announcements relating to contractors:
1. VAT Flat Rate Scheme (FRS)
A new Vat flat rate of 16.5% will be introduced from April 2017 for contractors who have little expenses. For example, an affected IT contractor with a turnover of £100,000, instead of receiving a £2,600 flat rate gain under 14.5% flat rate, the gain will decrease to a mere £200. This could mean that he could be better off switching to the standard VAT scheme and claims input VAT on his expenses.
We will be publishing illustrations and the changes in more detail to our clients shortly.
2. IR35 reforms in the public sector
From April 2017, contractors working in the public sector will not be able to determine their IR35 status. The entity that pays the contractors will become responsible for deducting the correct tax and NIC if they are inside of IR35. Furthermore, public sector contractors will no longer receive the 5% allowance.
We are working closely with PRISM and Professional Passport and will provide further update to public sector contractors shortly.
3. Personal allowance
From April 2017, personal allowance will increase to £11,500 and basic rate band will be £33,500. In other words, higher rate tax threshold will increase from £43,000 to £45,000.
The table below sets out the thresholds from 2016 to 2017 to include the changes from this measure:
The government is committed to raise the personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this parliament.
4. National insurance
Class 1 Employer and employee national insurance (NI) thresholds will be aligned from April 2017. This will see both employees and employers start paying NI on weekly earnings above £157. The current thresholds for 2016/17 stand at £155 per week for employees and £156 for employers.
Class 2 NIC for self employed will be abolished.
5. Corporation tax
Corporation tax will fall to 19% (currently set at 20%) for the financial year beginning 1 April 2017. The Government is on track to cut down the rate of corporation tax to 17% by 2020 and reduce the burden of business rates by £6.7 billion over the next 5 years.
6. Tax avoidance penalties
The government is set to introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for any person or business that uses such arrangements.
7. Making Tax Digital
In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes. We are yet to see what changes, if any, are made to the original plans for MTD, based on the responses to the consultations.
8. Insurance Premium Tax
Insurance Premium Tax (IPT) standard rate will rise to 12% (2% increase) from 1 June 2017. This might affect the cost of insurance products such as professional indemnity for contractors.
We will be releasing more detailed information on these announcements in the next few weeks as the draft legislation will be published on 5 December 2016.
In the meantime, if you have any questions or would like any advice, please call our experts on 0207 078 0211.