Philip Hammond’s first Budget will be delivered on March 8th 2017 – it will be the last ‘Spring Budget’. Here, we remind ourselves of the pre-announced tax changes which will start from April this year.
No more Spring Budgets
In an effort to promote ‘certainty and stability’, and to minimise the annoyance of having to adjust to two significant fiscal events during the same year, at the last Autumn Statement, the Government announced the move to a single event. This means that 2017 will see two Budgets – the final Spring one, as well as the new Autumn one.
From 2018, there will also be a ‘Spring Statement’, which is merely expected to be a response to the latest forecasts for the economy and public finances – unlike the now axed Autumn Statements, which had in recent years become little more than second Budgets. Interestingly, the UK had become the only ‘advanced’ economy to make significant changes to its tax system more than once annually.
The March Budget will also take place just weeks before the Government’s own deadline to trigger the formal ‘Brexit’ process. The Prime Minister stated that Article 50 would be triggered no later than 31st March.
What we know already
Several pre-announced changes to the tax system are due to take effect from April 2017… and they are not contractor-friendly.
Public Sector IR35 clampdown
Firstly, the changes to the way the IR35 rules are administered for contractors working in the public sector. From April 2017, clients will become responsible for determining the IR35 status of contractors.
Following the rule change, contractors deemed to be inside IR35 will have income tax and National Insurance deducted at source.
Those caught by the new rules face a further penalty in that they will no longer be able to write off a flat 5% allowance against their Corporation Tax bills to cover the administrative costs of running a company.
Two main questions remain unanswered – firstly, what if a public sector body gets its employment status decisions wrong? Who is liable for taxes subsequently found to be owing? And secondly, is this a test run for the private sector? We should know more about both questions later in 2017.
Flat Rate VAT scheme changes for limited cost traders
The FRS was implemented to simplify VAT accounting for small businesses. Rather than working our your precise VAT liability each quarter, you apply a fixed percentage to your VAT-inclusive turnover and repay this amount to HMRC.
However, the Government believes the system has been abused and has removed the benefits for so-called ‘limited cost traders’ from April 1st 2017. So, if you incur very limited expenses in the running of your business, you may have to apply a higher percentage to your turnover (16.5%) than non-caught contractors (who pay 14.5% on the whole).
You can find our more in our dedicated guide to the Flat Rate VAT changes.
Reduction in the Corporation Tax rate
A rare treat for small companies – the rate of Corporation Tax will fall from 20% to 19% from 1st April 2017. It is expected to be cut by 1% in subsequent years before reaching 17% in 2020.
National Insurance rates aligned
Accountants often complain about the fact that the thresholds which determined when Employers’ and Employees’ National Insurance apply to employees’ pay differ by a mere £1 per week. From April 2017, the thresholds will be equalised at £157 per week.
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