Quick budget summary for Ltd Co contractors
Despite first appearances, this budget doesn’t seem as bad for Ltd Co contractors as the scaremongering press might have us believe. Sure, there are several measures targeted directly at freelancers, but the financial impact of each seems less than catastrophic, unless you’re working in the public sector of course!
We’ve summarised below those points most relevant to Ltd Co contractors, which, when added together, we reckon amount to perhaps a few hundred pounds a year for most Ltd Co contractors working in the private sector.
The tax free dividend allowance will reduce from £5,000 to £2,000 per shareholder, from Apr 2018.
Personal tax allowance will increase from £11,000 to £11,500 from 1st April 2017.
Higher rate tax threshold will rise from £32,000 to £33,500.
From 1st April 2017 Corporation Tax will fall to 19%.
By 2020 Corporation Tax will decrease further, to 17%.
Flat rate VAT scheme
The VAT rate applicable for businesses utilising the Flat Rate Scheme (FRS) increases from 10% to 16.5% rate from 1 April 2017.
Note: The FRS is only available to businesses with costs of less than £1,000 of goods or 2% of turnover per year ie most freelance contractors. Use this HMRC tool to check your VAT flat rate and remember, there is still a 1% discount in your first year of VAT registration.
Off-payroll working in the public sector
The much publicised changes for contractors working in the public sector are going ahead from 6 April 2017, although the final legislation will not be published until around 20 Mar, just 2 weeks before go-live on 6 Apr! The respective public body are responsible for advising the agency and contractor whether the assignment falls inside or outside IR35 and the agency will then become responsible for deducting tax and NI at source for those considered to be working within the scope of IR35.
For help assessing your IR35 status please use HMRC’s Employment Status Tool
Quarterly digital tax reporting
Businesses with a turnover less than VAT registration limit (£83K) will not be required to start quarterly reporting now until a year later than other business ie Apr 2019.