The Budget 2017 was delivered by Philip Hammond on the 22nd of November, the first budget announce in Autumn in 20 years. The Spring budget has been replaced by a Spring Statement, which will take place for the first time in 2018.
This change means that the tax system will be reviewed just once a year rather than twice, giving contractors and employers plenty of time to adjust to the new tax year beginning in April.
How the Budget 2017 Affects Contractors
The Construction Industry Scheme
The government pinpointed construction industry VAT fraud in this year’s budget and has taken steps to prevent abuse.
Outlined by the Chancellor is a shift in responsibility for paying VAT along the supply chain, removing the opportunity for money to be siphoned off.
Instead of taking legislative measures to prevent fraud, this VAT “reverse charge” will come into effect from the 1st of October 2019, giving those in the Construction Industry Scheme (CIS) plenty of time to prepare themselves.
Security Deposit Legislation
Additionally, the government is planning on expanding existing security deposit legislation to corporation tax and CIS deductions. These changes are set to be legislated in the Finance Bill 2018-19, and are to take effect from the 6th of April 2019.
The security deposit legislation is designed to ensure the collection of debt in cases of insolvency.
Finally, the government has announced support to the construction industry, promising to provide £34 million to scale-up training across the country. This is part of an initiative to build more affordable housing, for which the government has set aside a further £2 billion, taking the budget up to £9.1 billion.
Construction skills are also going to become the focus for the National Retraining Scheme, and an additional £170 million of investment is set to be funnelled through the Industrial Strategy Challenge Fund. Likely leading to an increase in contractors engaged in the CIS.
The Private Sector
The Autumn Budget also provided key points for the private contractor industry. Despite strong suggestions that the government was going to come down hard on those that fall within IR35, having reformed off-payroll working rules in the public sector in April 2017, IR35 only got a passing mention in the 2017 Budget.
Early indications post-reform have shown an increase in compliance, which means the government is now thinking of rolling out changes to the private sector too. However, the government does not feel ready to implement reform on the private sector just yet, and are awaiting the findings of a report set to be published in 2018.
If the government does decide to extend off-payroll working rules to the private sector, we can expect to see:
- The responsibility for judging a private sector contractors’ IR35 status passed to the company or organisation. (As opposed to the contractor themselves.)
- This will likely lead to more contractors ensnared by IR35 rules.
This will mean you will see a change in your payment situation. And you will need to look at taking action if you are being paid through the following:
- Your own Limited company / Personal service company (PSC).
- You are paid your gross pay as you are registered as self employed.
- You are paid through a loan scheme company.
Budget 2017: Main Highlights for Umbrella Contractors
Increases in Allowances & Wages
The government have rather conservatively increased the tax-free Personal Allowance from £11,500 to £11,850.
On top of this, the 40% tax band will be moved up from £45,001 to £46,350. This will benefit the average taxpayer by £1,000 a year according to Philip Hammond.
National Living Wage
Following recommendations from independent body, the Low Pay Commission, the government is to increase the national living wage by 4.4% from £7.50 to £7.83 from April 2018. For those paid the national living wage full time this equates to a pay rise of £600 per year.
National Minimum Wages 2018
The following are the increases in national minimum wages in the UK from 2017 to 2018:
- 21-24 year olds from £7.05 to £7.38 per hour (4.7%)
- 18-20 year olds from £5.60 to £5.90 per hour (5.4%)
- 16-17 year olds from £4.05 to £4.20 per hour (3.7%)
- apprentices from £3.50 to £3.70 per hour (5.7%)
In an aim to reduce paperwork for employers, contractors will no longer need to present receipts from April 2019. Instead you will be reimbursed using benchmark ‘scale rates’. Whilst this will mean a streamlining of the expenses process, budgets will tend to be on the more frugal side.
All in all, the next tax year is looking pretty favourable for contractors, with rises in the national living wages and national minimum wages. That’s as well as an increase in the personal tax allowance and the 40% tax bracket. In all likelihood this will translate to more take-home pay across the board.
With private sector IR35 seemingly delayed until the 2019-20 tax year, planning for these changes isn’t a necessity right now, but is certainly advisable.
Have any questions about how the Budget 2017 will affect you? At PPS pay we’re more than just a payroll company. We’re here to help. Call one of our team today to find out more!