As is customary with Autumn Statements the Chancellor set the scene by talking about the state of the economy (one of the world's fastest growing), public spending (significant investments in roads, rail and housing required), employment (highest for many years) and borrowing (higher than forecast).
He then proceeded to set out his plans for the future:
- Economy - the UK economy should be one which 'works for everyone'. He said that he wanted to close the productivity gap which existed between the UK and some of its major international competitors though he didn't acknowledge the role that contractors play in making the UK competitive today. We await the details of how he proposes to do this.
- Public Spending - there was good news for those in construction and rail since the Government will be investing in infrastructure.
- Employment - the National Living Wage will go up from £7.20 to £7.50 which is good news for the lower paid; salary sacrifice schemes which reduce tax and National Insurance for employees will be abolished which will affect the take home pay of those using the schemes - of course, for contractors this change was introduced last April so it is really a case of the rest of the workforce catching up.
- Personal Tax - the Personal allowance will increase by £500 to £11,500 in April, and £12,500 by the end of this Parliament which will increase take home pay. Taxpayers will not fall into higher rate tax until they earn £50,000 (by the end of this Parliament) which will help those with salaries in the high forties.
- Borrowing - the Chancellor acknowledged that it was going to take longer to get borrowing under control; this was in part due to the economic uncertainty caused by Brexit and the fact that the economy was growing more slowly than predicted (so less tax from business). This may affect his spending plans in the long term.
Contractor Specific Measures:
IR35 in the public sector - Previously announced IR35 changes for the public sector are set to go ahead in 2017 as planned. This is disappointing particularly since just about everyone consulted said it was a bad idea, not least because it will be very difficult for end clients and agencies to understand and implement.
HMRC have said that the new online IR35 tool will help end clients and agencies to make a decision but the cynics will say that it will simply indicate that either everyone is caught or it does not have sufficient information to make a decision. In which case, contractors will need to get an IR35 review done in order to challenge the decision. This is something PayStream can help with.
5% allowance (IR35 changes) - For those caught by IR35 the Government has removed the 5% tax free allowance to cover administrative expenses. This will increase the tax that those caught will pay.
VAT flat rate scheme - A new 16.5% VAT rate will be introduced from April 2017 for businesses with limited costs, such as labour-only businesses. This will reduce take home pay for many contractors though a PSC will still be much more tax efficient than PAYE.
Penalties for “enablers” of tax avoidance schemes - The Chancellor announced more HMRC powers and penalties to tackle those involved in tax avoidance in all its forms including a clampdown on disguised earnings through self-employment.
The penalties are meant to deter enablers or promoters of tax avoidance schemes. This is consistent with HMRC' recent focus on contractor loan schemes, EBTs and other offshore schemes. Contractors who used those schemes are now getting bills for tax years five or six years ago.
Consultation on fairer tax for people doing similar roles - In his speech the Chancellor mentioned a fairer society and that people working alongside each other in similar roles should be paying the same tax. No detail was given but the concern is that this could pre-empt another attacks on the self-employed.
Other announcements included:
- Planned fuel duty rise cancelled saving the average car driver £130 and van driver £350 a year;
- A ban on upfront letting agents fees for prospective tenants;
- No plans to cut the welfare budget in this Parliament;
- An increase in Insurance Premium Tax from 10% to 12% in June 2017 (which may affect insurance premiums for contractors);
- A 3 year bond available through the NS&I delivering 2.2% gross interest to encourage savers.
A lot of the detail (including draft legislation) relating to these announcements will not be issued until 5 December at the earliest so we will update you again in a couple of weeks.