Budget 2018 - the top 3 items for freelance contractors
IR35 changes will be rolled out from April 2020 - we do not know the full detail of these changes yet but what we know we actually quite like.
We know that they will only be for medium and large businesses, the definition of this should be something in line with the Companies Act 2006 definition which states that a business is not small if it has two of the following:
- Net turnover of more than £10.2 million
- Balance sheet total of more than £5.1 million
- Employs more than 50 employees
It therefore will not impact on businesses that do not meet these criteria.
We also know that medium and large companies will not be allowed to simply classify all contractors as inside IR35. They will have to show that they have taken due care in assessing the contract before coming to their decision.
From conversations we have already had with a number of specialists in the IR35 advice market, we believe there will be a number of specialist HR firms who already advise on IR35 that will take on the outsourced decision making for medium and large companies as to which contracts are outside and which contracts are inside of IR35. This could make it quite simple and stress free for medium and large companies to continue to engage contractors. It should also ensure all contractors are classified correctly as inside or outside of IR35 depending on the exact merits of the contract and their day-to-day working.
By moving the decision making to the end client (who in turn may move it to an outsourced specialist HR firm) contractors will no longer be responsible for deciding if they are outside or inside of IR35 (unless they are engaged by a small business). This will remove much of the uncertainty and fear for the contractor in getting the decision wrong.
Final note - April 2020 is a long way off, there will be a full consultation on how this is to be implemented and we believe it is a great opportunity for the contractor sector. We will be keeping an eye on all HMRC updates regarding the implementation and engaging with the upcoming consultation. We will of course keep you informed with news and updates as they are released.
Personal tax allowance and the Higher rate tax threshold
The personal tax allowance will be rising from £11,850 to £12,500 and the higher rate tax band will start from £50,000 up from £46,350. These are both great changes for contractors with their own limited companies as it will allow you to get £3,650 more out of your company before you have to pay the higher rate of tax. £650 of this increase in income will be tax free with the other £3,000 only taxed at 7.5%.
One of the conditions for being able to claim ER when you close down a business is that you have met the criteria for the last 12 months, this is being increased to 24 months. This will not affect the vast majority of contractors but if you were planning to close your company down after only 12 months and claim ER then from April 2019 you will have to have traded for 24 months in order to claim ER.
As always if you have any questions regarding any of the above or you wish to talk through how it affects you then please do give us a call or drop us an email at firstname.lastname@example.org