Osborne’s budget – woeful or wonderful for freelance contractors?
It’s been scorned as a benefits-buster and simultaneously hailed as a “living wage” lifter – yes, George Osborne’s new budget has certainly raised a few eyebrows, but what does it mean for freelance tech contractors? Here’s our take on the highlights:
Corporation Tax Cuts
It may not be by much, but Corporation Tax rates will fall from 20% to 19% in 2017, and to 18% three years later, reducing tax liability for Ltd co. consultants. Great, every little helps, but read on…
Wave goodbye to the Dividend Tax Credit – and say hello to the Dividend Allowance.
£5K is the new tax-free limit, as of April 2016. Beyond this, dividend tax will be pitched at 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate. A huge overhaul, by anyone’s standards, which will potentially cost freelance contractors dearly – BUT these rates still remain lower than the main rates of Income Tax, so contractors working outside of IR35 still benefit from taking dividends over salary.
Consultation Claims – Bed, breakfast, and everything in between
Noises have been made about possible rule changes regarding taxation of travel and subsistence expenses for freelance contractors for some time now. These changes are now expected to hit, with the Government mostly targeting Umbrella company employees who work under the direction and control of the end client (ie. falling outside of IR35.) Whilst there will also be tweaks to Limited company rules, it is likely that some freelancers could now benefit from flying the Umbrella nest.
IR35 and Employment Openness
IR35 is under review… still.
As the main legislation against disguised employment, its efficacy has been in question for some time now, but the government remains determined to make this work, in some form or another, as they are relying on the extra tax revenues they believe this will generate. Stakeholders will continue to have their brains picked by the Government, to improve its effectiveness and the government’s ability to practically enforce it. Discussion documents to follow…
Tax Loophole Lockdown
£750k has now been set aside to investigate individuals still using a tax avoidance scheme.
Osborne’s new budget has seen the Government ramping up its efforts to detect and discipline anyone partaking, making tax avoidance an ever-riskier business. We would encourage any freelancers involved in dubious practices (offshore accounts, directors’ loans that will never be repaid, etc) to seriously reconsider their position, whilst it’s still in your control.
“Sole Employee” Exclusion
After parts of the recruitment and accountancy sectors have been caught abusing the Employer’s NI Allowance, this budget has removed this entitlement from companies with just one employee / Director. This could soon be stretched to include companies with two employees / Directors, often the freelancer’s wife or partner, but this has not yet been confirmed.
This first Tory majority budget makes it clear that the government is determined to increase tax revenues in order to reduce the deficit, but we’re still to see where the axe will really fall (and fall hardest) for professional freelance tech contractors.