How the summer budget will affect contractors
With chancellor George Osborne having just revealed the government’s 2015 summer budget, the Association of Independent Professionals and the Self Employed (IPSE) website rounded up the key points affecting freelancers and contractors.
As the article notes, these issues largely consist of stricter rules in some areas, along with tax cuts in others and significant changes to both dividends and pensions. These are explained below in more detail:
Travel and subsistence: Despite the ISPE calling for the government to exclude limited company contractors from restrictions to travel expense claims, the new rules are now up for consultation. If passed, it could have a negative impact on both limited company contractors and those who use their services.
IR35 reform: Consultation will begin on making IR35 legislation ‘more effective’ at dealing with disguised employment. While this is something that the IPSE supports, it also warns that small businesses should still be able to operate without undue suspicion.
Employment allowance: The Employment Allowance for relief from Employer’s NICs has been raised from £2,000 to £3,000; but it will not be valid for one person companies anymore.
Vehicle Excise Duty: New cars will no longer be exempt from this because of their low emissions. It’s thought that this could put many freelance workers off buying a new car.
Personal allowance: The personal allowance will increase to £11,000, benefitting limited company freelancers in particular. The government hopes to further raise this to £12,500 in future.
Corporation tax: Many were surprised with the chancellor’s decision to cut corporation tax to 19% in 2017, with a further 1% drop planned by 2020. The move marks a positive step towards improving the UK business landscape, the IPSE notes.
Freeze on fuel duty: With many self-employed workers having to travel across the country, the continuation of a freeze on fuel duty was more than welcome.
Dividends and pensions reforms
Dividends: The payment of tax on company dividends has completely changed, with dividend tax credits replaced by a new £5,000 tax-free allowance. Dividend tax rates will be set at 7.5%, 32.5% and 38.1%, with those paid within pensions and ISAs remaining tax-free.
Pensions: The government has pledged further reforms to pensions, including the possibility of new ways to save, such as a ‘Workplace Isa’. This could improve the opportunities for contractors and the self-employed when saving for their retirement.