The Spring Budget 2017
Following yesterday’s Spring Budget delivered for the first time by Philip Hammond, here are the key points for Freelancers.
Tax-free dividend allowance will drop to £2,000 from the current £5,000. This will be introduced in April 2018 and will affect small business owners and shareholders who take their salary as a combination of salary and dividends. Dividend income paid on shares held in a stocks and shares ISA will remain tax free.
Corporation tax will drop to 17% by 2020, from its current 20% which will be the lowest rate in the G20. From April 2017, corporation tax will fall to 19%, and after this it will fall again to 17% in 2020.
Personal Tax Allowance
The personal tax-free allowance to rise to £11,500 this year and to £12,500 by 2020.
The VAT registration threshold will increase from £83,000 to £85,000 on first of April 2017. The threshold for de-registering for VAT will also increase from £81,000 to £83,000.
Cash Basis Accounting for Sole Traders and Partnerships
From 6th April 2017 businesses’ accounts for the self-employed will be able to be prepared on the cash basis. The cash basis allows some businesses to work out their profit based on when money coming in and going out, rather than when income is earned and costs are incurred. From 6th April 2017, sole traders and partnerships can start using the cash basis if their sales are under £150,000 a year until sales reach £300,000 a year. Currently the threshold is £83,000.
National Insurance Contributions for Self-Employed / Sole Traders
Class 4 NICs will rise from 9% to 10% from April 2018. From April 2019, NI’s will rise a further 1% to 11%. This is proposed to close the tax gap between the self-employed and employees. Currently employees pay 12% in NICs, while the self-employed pay 9%. George Osborne’s abolition of Class 2 NICs will come into effect from April 2018. No changes to National Insurance paid by the employed and employers or to income tax or VAT
Making Tax Digital
Businesses with a turnover under £83,000 (the VAT threshold) will have until April 2019 until MTD becomes mandatory, giving smaller businesses longer to prepare for the switchover.
This will be Chancellor Philip Hammond’s first and last Spring Budget as the Autumn Budget (previously Autumn Statement) will become the only annual Budget.
£270m for new technologies such as robots and driverless vehicles
What’s the bottom line?
Our opinion is that operating as a limited company is still the best option for freelancers. Corporation tax levels are set to drop in the coming years and by taking a combination of salary and dividends, this maximises the tax efficiency over employment or being self-employed (particularly as NI levels for the self-employed have just increased). Sole traders do not receive a dividend tax allowance, nor are they able to split dividends with their partners, or pay into a company pension. Limited Companies remain more flexible and tax efficient.
Source for information http://www.bbc.co.uk/news/uk-politics-39203784