The Chancellor’s first (and last) Autumn Statement
So the Chancellor, Philip Hammond, has delivered his first Autumn Statement and has announced that it is also to be his last as he has abolished this way of reporting the state of the country’s finances to the nation.
In the future, the Budget will be delivered in the Autumn and we will receive a “fiscal statement” in the spring.
So more of an adjustment than a change!
Adjustments to contractors’ taxation
Now we have had a chance to pore over the reams of documents that have been released supporting the statement, what are the likely effects on contractors going to be of the changes to taxation scheduled for April 2017 and beyond?
Here are the points touched by the Chancellor:
- Corporation tax
- Personal tax allowance
- National Living Wage
- IR35 reform
- Disguised remuneration
- Spending on infrastructure
All limited companies pay Corporation Tax on their profits. This applies for multi-nationals as well as Personal Service Companies, so any reductions in the rates of CT are going to be widely welcomed. The Chancellor has confirmed that plans to reduce the rate of CT from its current level of 20% to 17% by 2020 will be adhered to. The first reduction comes in April 2017 where the rate will be reduced to 19%.
It is hoped that making the UK one of the countries with the lowest rates of CT will stimulate businesses from overseas to base their operations here and that will stimulate growth.
Lower rates of CT will also benefit contractors who operate their own limited companies as they will see a small increase in their income.
Personal tax allowance
As expected, further increases to the personal tax allowance have been announced. The personal tax allowance is the amount of income an individual can earn before they pay tax, and the Chancellor has committed to increasing this from its current amount of £11,000 to £12,500 by the end of this Parliament. He has also committed to increasing the threshold at which the 40% tax rate kicks in to £50,000 by the same deadline.
We will see the personal allowance increase to £11,500 in April 2017.
National Living Wage
The National Living Wage replaced the National Minimum Wage in April 2016 and for workers over 25 years of age, the minimum rate payable by employers is £7.20 per hour. In the Autumn Statement, it was confirmed that this amount will increase by 30p to £7.50 per hour in April 2017.
Whilst this change might not have a major impact on higher paid contractors, for lower paid contractors, especially those working via umbrella companies, this will have an impact on their net income and holiday pay.
As a compliant umbrella provider, we always meet our National Living Wage obligations and if you are unsure what effect this change to NLW will have then please get in touch with your Account Manager.
As expected, the Autumn Statement contains confirmation that following consultation, the Government plans to reform the way that that off payroll workers in the public sector are taxed. This will affect thousands of contractors working in the public sector who believe that they are “outside” IR35 and therefore able to pay themselves in a tax efficient manner by way of dividends.
The key change will be that the responsibility for these workers paying tax correctly will be passed to the organisation making the payments to the workers’ company.
The Government have said that this will tackle the current levels of non compliance and will ensure that workers are taxed fairly.
It is our belief that this will lead to huge numbers of contract workers leaving the public sector entirely. It will also lead to many public sector employers deciding not to engage with any limited company contractors or to declare that they are all to be paid as PAYE workers and this will adversely affect many genuine contractors providing their services through limited companies.
We had hoped that there may have been a postponement to these changes given that the digital system that employers have been told to use to implement them is still in development. It seems that the Government are not for turning.
As contractor accountants, we will of course be keeping a close eye on the changes as they come into force and will be happy to advise our contractors.
In the Budget in 2016, the Government announced that they were tackling the use of disguised remuneration schemes by employers and employees and this has now been extended to attack the use of these schemes by the self-employed to ensure that they too pay their fair share of tax.
Spending on infrastructure
In our preview of the Autumn Statement, we said that we expected announcements of spending on infrastructure projects and this was confirmed. There was little detail given by the Chancellor however it was confirmed that funds had been allocated to the North and Midlands to boost productivity and drive growth in the regions.
Funding was also confirmed for the building of 40,000 new homes and £2.3 billion has been earmarked for building the necessary infrastructure to build up to 100,000 new homes in areas of high demand.
Technology has also been given a boost with a commitment of £1b for Broadband and 5G projects across the UK.
Now all these seem like good news for contractors as most infrastructure projects rely on contracted labour and skills to make them work. We have to hope that there are still some contractors left to do the work on the public sector projects if the changes to IR35 go through as planned!
It’s hardly surprising that so much of the contents of the autumn statement had been released in advance. Had all of the announcements been kept to the actual statement then there may have been too much of a distraction when the level of borrowing was confirmed.
The devil is in the detail and looking at the detail shows that borrowing as a percentage of GDP is forecast to peak at 90.2% in 2017/2018.
So it seems that that Chancellor need to borrow from Peter to pay Paul. Needless to say, we will be keeping our own eye on things and will of course let you know of anything that will affect contractors over the coming weeks and months