2017 stands as something of an anomaly on the important political announcement front – the one and only time that there will be two Budgets in a single year. As noted by the Chancellor last November, the Autumn Statement has now ceased to be. Tomorrow’s spring Budget will be the last of its kind (for the foreseeable future at least), replaced by a yearly autumn Budget (commencing in autumn of this year), followed from 2018 onwards by a Spring Statement.
Confusing? Yes. A good idea? Definitely. By holding the Budget in the autumn it will allow for major tax changes to occur annually, well before the start of the fiscal year. The Spring Statement will then exist to respond to OBR forecasts, but will not be a major fiscal event in itself.
So what should contractors expect tomorrow? As always, it’s impossible to truly predict what will happen (take last year’s Autumn Statement as an unwelcome example) but there are a few key pointers to look out for. We don’t expect to see anything dramatic given that there will only be a 6 month gap between Budgets (not to mention the fact that the Government’s self-imposed 31st March deadline to begin the formal Brexit process is arriving at a startling pace) but there’s always room for a surprise or two. What do we already know, and what would we like to see? Read on below for our observations.
IR35 in the Public Sector
If you’ve been keeping half an eye on the contractor press (or the recruitment industry, or the public sector) you’ll know that much-maligned changes to IR35 are coming into play on 6th April. To put it simply – end clients in the public sector will become responsible for determining the IR35 status of contractors. Those contractors then found to be inside IR35 will have income tax and National Insurance deducted.
Given the confusion surrounding the changes, a number of government bodies have recently called for the reform to be delayed. Coupled with the unfavourable reception that recently greeted the launch of the government’s long-delayed IR35 digital tool, it’s clear that the whole process needs a lot more thought (and a lot more communication) if it’s to truly succeed.
Like our good friends at Brookson, we’d be very surprised to see any delays to the reform come into play at such a late stage. Some clarity on where liability lies would be very welcome, however, and is probably the best we can hope for.
Personal ‘Tax Free’ Allowance
The government confirmed today that it will meet its commitment to raise the income tax personal allowance to £12,500 before the end of this parliament (as well as confirming its commitment to increasing the higher rate tax threshold to £37,500, meaning that contractors will need to earn a total of £50,000 before they incur a higher tax rate liability.)
Changes to the Flat Rate VAT Scheme
Upon introduction, the Flat Rate VAT Scheme was implemented to simplify VAT accounting for small businesses. Since then, however, the government believes it has been misused, with the Chancellor stating how keen he was to tackle what he termed the “aggressive abuse” of the scheme.
As a result, tucked in among a veritable raft of anti-contractor measures in the 2016 Autumn Statement, Phillip Hammond introduced a new Flat Rate VAT category that threatened to hike the VAT bill for the typical limited company contractor from 14.5% to 16.5% of gross turnover from April 2017 onwards. As with IR35, it’s extremely unlikely that we’ll see any changes on this front.
To Be Confirmed
What else would we like to see? As we’ve mentioned previously, it’s unlikely that any new ground will be broken before the autumn. That being said, tomorrow’s Budget would be an excellent opportunity for the government to offer up a carrot to the contracting community to offset last November’s stick.
With the number of freelancers and contractors growing exponentially, and with key and emerging sectors like media and the sharing economy seeing an ever greater influx of the self-employed, some new initiatives to capitalise on the boom would be welcome.
George Osborne, Mr. Hammond’s predecessor, was a supporter of the so-called ‘gig economy’, announcing several tax breaks. Any attempts by the current Chancellor to build on that progress would surely be welcomed warmly.
We’ll know more by tomorrow afternoon. Check back in on the Kingsbridge blog in the evening for our analysis. In the meantime, you can join us over on Twitter as we Live Tweet the most important announcements.