George Osbourne has delivered his 2016 budget, and while the big talking points seem to be around a new sugar-tax and the academisation of the nation’s schools, we’re focusing on the main areas that will affect freelancers, independent contractors and other self-employed people.
Below are our initial thoughts. Remember, if you want to discuss how the 2016 budget may affect your business, feel free to get in contact with us here.
Corporation tax will be cut to 17% by 2020, from 20% now
On this point, Osbourne seems to be ahead of schedule. Is this something to celebrate? Are there pros and cons, and if so, what are they?
This is very good news, although it remains a few years away. In layman’s terms, it will mean that more funds can be retained in the company to draw as dividends in the future.
Capital gains tax slashed from 28% to 20% for top rate taxpayers, and from 18% to 10% for basic rate taxpayers
Again, this sounds promising for most people. How will this affect the average self-employed, small business person? Are MAF customers going home with more in their pockets?
While it sounds promising on the surface, it’s only really relevant if you’re selling an asset such as shares or second homes, so it wont impact on most people. If that sounds like you, however, make sure you drop us a line and let us know – if you haven’t done so already.
Tax on director’s loan increases from 25% to 32.5% (to match dividend tax rate)
Uh-oh! Presumably most MAF customers are directors of their own ltd companies, so this looks significant. Is it something we should be concerned about?
Ideally, you wouldn’t be taking a directors loan from the company in the first place. But if you do, and you don’t repay within nine months of the year’s end, things don’t look as beneficial to you as they may have done yesterday. Again, chat to your accountant if you think it’s going to affect you, just to be on the safe side.
Tax free allowance to be set at £11,500 from April 2017, and the higher rate bracket to £45,000
Is this news as positive as it sounds? Are there any negatives to be aware of?
It’s good news for anyone who is working, as it means more dividends can be drawn in the basic rate tax band during the 2017/18 year. It’s not something that will have an effect immediately, though. All in all, there don’t seem to be any negatives here.
Class 2 NIC abolished for the self-employed
Go on… tell us this means more money in the pocket…
It does if you are self-employed, but not if you’re the director of a ltd company. Note the difference. Still, good news for self-employed folk.
Osbourne announces a tax allowance for people who make money from activities like renting out a room
It’s already being called ‘The Airbnb Tax’ on social media. Does this mean we should all become landlords?
We believe it just means that a given amount will be tax-free income, which is good news if you’re renting a room. However, there is already a rent-a-room allowance as well, which is far higher. Again, it’s going to have to be one of those answers: talk to us if you’re confused.
Government to close a VAT loophole used by overseas internet merchandisers
This, presumably, is good news for Britain’s merchandisers. Will this make a difference to many MAF customers?
It’ll certainly affect the odd few who import and pay the VAT, but on the whole – while this seems like a positive move by the Chancellor – most MAF people will not be impacted.
PSC will no longer be allowed in public companies
This sounds like something that will have a big effect on the average MAF customer. Can you explain?
Yes, this is a big one for us. PSC stands for ‘personal service company’, i.e., a person trading inside IR35 normally using an umbrella scheme or a ltd company, which many freelancers and independent contractors can be classed as. Basically, the government will be bringing in some form of new test to ensure that public companies cannot employ or take on staff off payroll. How will this work? Well, we’ll have to wait and see. It seems that the recruitment agencies will have to ensure their contractors are paying the correct amount of taxes and NI, but that’s just our view.
Entrepreneurs’ relief will be extended to long term investors in unlisted companies
You were concerned about changes to entrepreneur’s relief. Are these the changes you were expecting?
We were expecting something different, to be honest. Most importantly, we were expecting that you would not be able to start up a new company within two years of closing your last one. Neither were we expecting to have to hold the shares for a new company for a three-year period, as it is currently only 12 months and not many contractor companies stay around for three years at present. However, some of these changes may be further ironed out in the coming days, and may appear in other legislation, so it’s a matter of ‘watch this space’.
In slightly more detail, the changes to ER – as we understand them – are a 10% rate of capital gains tax for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains. Get in touch if you’d like that explained further.
Beer, cider and fuel taxes will not be raised
Is this something you’ll be celebrating?
We’ll tell you in the bar. It’s your round, isn’t it?
