The 2017/18 tax year has begun, and with it, in come a number of changes that may affect the tax you're required to pay and the amount you can take out of your business legally.
Here's a break-down of the now enforced changes to tax for the year ahead:
Public sector IR35 reform.
Perhaps the most significant news for contractors is the long-awaited changes to IR35 in the public sector. From now, the responsibility for setting the employment status of public sector contractors falls on the public sector client, rather than the contractor.
If found ‘inside’ IR35 by their public sector client, contractors will have Income Tax and National Insurance taken from their pay cheque. 85% of contractors plan to stop working in the public sector should they be caught by the new rules – threatening major public sector projects and bodies such as The NHS, and various Government departments.
Whether public sector IR35 reform is a pilot project before rolling out the same changes in the private sector remains to be seen though.
Corporation tax lowered.
The level of tax that those working through their own limited company must pay on their profits has dropped by one percent, from 20% down to 19%. That The Chancellor pledged his commitment to reduce this further to 17% by 2020 has been welcomed by freelancers and contractors, who, in all fairness have been stung by the Government’s recent clampdown on tax.
Personal allowance upped.
Personal allowance – the amount of income anyone (self-employed or not) can earn without paying any tax at all – has risen from £11,000, to £11,500 per year. Now in its seventh year of successive growth, the increase will reduce the level of Income Tax you will have to pay HMRC.
Basic tax band rises.
The basic rate tax band (20%) has risen from £43,000 to £45,000, meaning you can earn another £2000 before you start paying the higher rate tax bracket of 40%.
This applies to both freelancers and contractors working through limited companies and as sole-traders, allowing for more take home at a lower tax rate.
VAT threshold rises.
The level of turnover at which your business needs to register for VAT has increased by £2000, from £83,000 to £85,000. This is set to save around 4,000 businesses the burden of charging VAT on every invoice, as well as filing a VAT return to pay it back to HMRC every quarter.
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