Autumn 2016 Statement

Philip Hammond has just delivered his first Autumn Statement and announced a whole raft of changes in government policy ranging from Research and Development incentives to help bridge the “productivity gap” to a £7.6m grant to save Wentworth Woodhouse – the inspiration for Pemberley in Jane Austen’s Pride & Prejudice.

So, what do you need to know? We at SG Accounting are busy reviewing the various documents released following the Autumn Statement and will identify the policies that will affect you. We have listed below the most prominent in Hammond’s speech, but keep an eye on our Blog Page over the coming days as we will be issuing further updates as the finer details emerge.

• Personal allowance and higher rate threshold

The government will meet its commitment to raise the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament. Next year, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000.

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An increase in the tax free threshold is good news for contractors and small businesses who can draw more money from their company as salary and dividends at lower rates from April 2017.

• National Insurance thresholds

As recommended by the Office of Tax Simplification, the National Insurance thresholds will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157.

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For contactors receiving a low salary with the majority of their income in dividends, this isn’t likely to prove a big change.

• Disguised remuneration

Budget 2016 announced changes to tackle the use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. However, in a notable change of tone to his predecessor, Hammond stated that the government would only ‘consult in due course’ over proposed changes – seemingly suggesting that he has other priorities to attend to first.

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Good news for private sector contractors in so far as no news is good news with regards to IR35.

• VAT Flat Rate Scheme

The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. On first reading of this new measure, it may be that contractors will be affected by this change, resulting in a reduction in the profit made from registering onto the scheme. We will of course be reviewing the detail and advising on any action needed or the future benefits of the scheme.

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This seems like a strange move considering the emphasis the government has put on simplifying the tax system.  Why bring in a system that might mean contractors and small businesses go back to claiming VAT on expenses instead?  The flat rate VAT scheme was designed to save time and admin not only for the business but also for HMRC itself.  Time will tell (we are expecting legislation 5 December 2016) whether the changes will mean contractors stay on the flat rate scheme or not.

• Tax avoidance schemes

The Chancellor said that, to tackle tax avoidance, the government would “strengthen sanctions and deterrents” and will take further action to clamp down on scheme promoters.

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We welcome the continued efforts of the government to tackle aggressive tax avoidance schemes. At SG, we only offer perfectly legitimate tax planning advice to ensure your affairs are efficient as possible.

• Letting agents fees

Letting agents will be banned from charging fees to tenants, so it would appear that this is another government policy designed to hit landlords as no doubt letting agents will simply change their fee structures to pass the costs on to landlords.

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Good news for those renting properties but will it mean that the landlords recoup their costs via an increase in rents?

• Off-payroll working in the public sector

Following consultation, the government will reform the rules in the public sector from April 2017 by moving responsibility for operating them and paying the correct tax, to the body paying the worker’s company. Following consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply

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Changes for public sector contractors are still pressing ahead from April 2017.  The responsibility for determining IR35 will pass to the public sector body or intermediary.  Time will tell whether we will see a strict approach to the application of the rules and what the government’s new online IR35 status tool looks like.

• Corporation Tax

Hammond confirmed that the government will be sticking to its promise of reducing the rate of Corporation Tax in order to support UK business. The rate will reduce from 20% currently to 17% – the lowest in the G20.

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This is a welcome relief for small business owners, especially given the new dividend tax changes implemented this year.  A small business with profits of £75,000 per year will save £2,250 in Corporation Tax.

In summary, early indications are that it’s a mixed bag for most contractors and freelancers with some potential changes to the beneficial Flat Rate Scheme but also some welcome news about increased tax allowances and reduced Corporation Tax rates.

SG Accounting was established in 1995 to service the accountancy and taxation needs of professional contractors and freelancers.

We are based in Winchester, and also spend much of our time travelling to meet our clients around the UK.  Bringing a true personal service to contractors across the country, we believe in saving you time and tax!

When you call us, you’ll speak to an accountant, not a sales team.

If you would like to discuss any of the issues raised in this years Autumn Statement, please feel free to call us direct on 01962 867550 or visit our website www.sg-accounting.co.uk.