The Spring budget didn’t really offer any big surprises but many contractors will no doubt be feeling disgruntled about what Phillip Hammond had to say in this latest budget.
Here’s a quick roundup of the announcements from the Chancellor which will be of interest to employees, self-employed and anyone running their own limited company.
The first disappointment came in the form of a National Insurance increase for the self-employed. The change affects class 4 National Insurance so specifically, those making more than £8,060 a year with NI going up from 9% to 10% in April 2018 and then to 11% the following year.
The government says self-employed people now have the same pension and benefit rights as those in employment, so the lower rate of National Insurance for the self-employed can no longer be justified.
The change has frustrated many self-employed contractors who argue that they aren’t entitled to the same benefits as employed workers such as sick pay or maternity pay. The rise will mean 1.6 million self-employed people will pay on average £240 more every year.
It has also come under criticism as the rise appears to break the conservative party’s 2015 manifesto pledge not to raise VAT, National Insurance contributions or Income Tax.
From next year the dividend allowance will fall from £5000 to just £2000 a year. This follows changes to the way dividends are taxed which were implemented just last year. The reduction in the allowance is yet another blow for those who run their own business and distribute dividends from their company.
This change could also have an impact on those who have significant share portfolios which aren’t held in a stocks and shares ISA.
The changes to IR35 for those contractors running their own limited company carrying out work for public sector clients will go ahead as planned. The changes come into force from April 2017. If you are a recruiter supplying contractors to the public sector or a contractor who undertakes such contracts within the public sector you can read more about the IR35 changes here.
As you would expect the budget came under immediate fire from many including of course the opposition leader who described it as a budget of “utter complacency.” Mike Cherry, the National Chairman of the Federation of Small Businesses responded to the increase in National Insurance for the self-employed saying “This undermines the Government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business”.
Freelancers and small business owners took to twitter and other media to voice their frustration with the changes.
If you are concerned about the impact the budget will have on you and are wondering if you are still being paid in the most tax efficient way, then get in touch.
For those currently working through our umbrella route then these changes shouldn’t have an impact on your earnings.
The implementation of the IR35 changes and the changes to the dividends allowance could mean that some contractors running their own limited company would benefit from joining an umbrella scheme rather than running their own business. Our umbrella scheme offers a range of benefits including the security of being employed along with advantages such as holiday pay, statutory sick pay and maternity benefit. On our umbrella route, all your tax and national insurance contributions are calculated for you by Sterling which means reducing paperwork and avoiding the requirement for a self-assessment tax return.
We will be happy to discuss your individual circumstances, the impact any changes to tax and legislation may have on your take home pay and the options available to you.