The Chancellor, Philip Hammond stood up at 3.30 pm on Monday 29th October to make his third budget speech and more importantly his last one before the UK leaves the EU. We’ve worked our way through his lengthy list of announcements and picked out the key points that as a contractor you need to be aware of.
Following a time of slow growth, it finally looks like things are on the up for the UK’s economy. The forecast for 2019 has been upgraded from 1.3% to 1.6%. Subsequent forecasts have been raised to 1.4% (2020), 1.4% (2021), 1.5% (2022) and 1.6% (2023). The Chancellor also announced that wage growth is the highest it has been for ten years.
Some welcome news from the Chancellor, the personal allowance from 6th April 2019 will increase from £11,850 to £12,500. This increase is happening one earlier than planned. Some other good news for contractors is that from 6th April 2019 the higher rate tax threshold will increase from £46,350 to £50,000. The basic rate will also increase, going up to £37,500 for 2019/20. It was also announced that from April 2019 the National Living Wage will increase by 4.9% from £7.83 to £8.21.
The level at which you must register and pay VAT will remain at £85,000. This threshold will remain unchanged for the next two years. VAT is an extremely complicated area of tax. If you are unsure if you need to register your limited company for VAT, give us a call on 01962 867550 for further clarification.
Intermediaries legislation – IR35
We’ve saved the biggest impact to the end. The Chancellor has confirmed that the controversial IR35 changes that were introduced into the public sector in 2017, will be rolled out to the private sector from 6th April 2020. The upside is that this is one year later than many expected, giving contractors and clients extra time to prepare.
Why is it needed?
HMRC believe that there is widespread abuse of non-compliance with IR35. If left untouched they estimate it will cost them around £1.2 billion per year by 2023 in lost revenue.
Will all contractors be affected?
The change will affect any contractor working through a Personnel Service Company (PSC) such as a limited company and who are engaged with medium to large businesses. We expect a more detailed definition of what constitutes a ‘medium to large business’ to be released sometime in the next few months.
How will it work?
Basically, the reform means the engager or client will become responsible for determining your IR35 status. If they decide that you are working inside IR35 you will be taxed at source (like an employee).
What can you do?
Firstly, don’t panic. The change doesn’t come into effect until April 2020. Up until then, you remain responsible for determining your IR35 status. But, there are things you can do in the meantime to prepare yourself for the change. Most importantly, engage with an experienced contractor accountant (like us) if you haven’t done so already. We’ll sit down with you and review your working practices and advise you on the best approach going forward. To speak to one of our directors, give us a call on 01962 867550.