George Osborne’s highly anticipated summer budget was announced yesterday, it was the first for a majority Conservative government since November 1996. It has been considered a mixed bag for contractors and freelancers, we have set out the key points which may affect you below.
- Limited Companies Hit Twice
A lot of limited companies in the UK tend to be one-man bands, yesterday’s budget revealed how these companies will be hit twice, this will substantially affect the take home pay of contractors in the coming years.
Changes to Employment Allowances – one man limited companies will not be allowed to reduce their Employers National Insurance bill by £2000 a year, like in larger limited companies, this perk is to be withdrawn.
Also, dividends are set to change, at current many limited company shareholders are able to take dividends up to the higher rate of tax completely tax free due to the 10% tax credit. As of April 2016 this is set to change, the 10% tax credit will be replaced by a £5000 dividend income allowance, and anything over this threshold is set to be taxed, starting at a rate of 7.5%.
- Corporation Tax
Corporation tax is set to be cut, as of 2017 Corporation Tax will be cut to 19%, then by 2020 it will be cut to 18%. This is estimated to affect over 1m businesses in the UK and will directly affect contractors and freelancers operating through their own limited company.
- IR35 Will Again ‘Be Looked At’
IR35 has been a hot topic for the Conservatives in their last 2 budget announcements which directly affects contractors and freelancers, seemingly because they believe it does not work very well. Mr Osborne has asked HMRC to “start a dialogue with business on how to improve the effectiveness of existing IR35 legislation.”
- Digitalisation of Tax Returns
The government have promised to sit down with HMRC to discuss how they can replace the current tax return process and integrate it with day to day modern business practices. They will be publishing a ‘road map’ of their plans later this year.
Other key points from yesterday’s budget include, a £9 living wage to be introduced for over 25’s by 2020, income tax amendments, housing benefit changes for 18-21 years olds, restrictions on travel and other limited company business expenses, changes to inheritance tax, permanent ‘non-dom’ tax status is to be abolished from 2017, amongst others.
The full budget can be read here.
All in all, the budget is a mixed bag for contractors and freelancers, with limited companies being hit the hardest. If you are a contractor or freelancer and have any questions in regards to how the budget will affect you please do not hesitate to contact us on 0330 024 0406.
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