Today, Chancellor Philip Hammond presented his first (and we now know last) Autumn Statement; providing an early look at the impact of Brexit on the UK economy. We’ve taken an initial review of the Autumn Statement’s highlights and analysed what they could mean for contractors going forward.
With the statement including announcements covering everything from a National Living Wage rise and employee perk restrictions through to repairs to Wentworth House, many independent professionals may have been left uncertain of the impact on them personally. Here we’ve demystified the chancellor’s speech to show what’s coming for independent professionals. The good news? For the most part, it’s business as usual.
‘Contractors will see some changes from amended VAT categories, Corporation tax amendments and the introduction of IR35 to the public sector. But, for the most part, it’s business as usual with an increased likelihood of new opportunities brought about by Brexit.’
Rowena Barnwell, Director of Client Services and inniAccount’s accounting mastermind
The announcement likely to attract the most headlines over the coming weeks is the Office for Budget Responsibilities lower growth forecasts. These forecasts have been attributed to higher predicted inflation and uncertainty in the business world following the EU referendum. This at first glance might appear a cause for panic. However, as we’ve explored in our ‘Thriving in Uncertain Times‘ series, times of uncertainty can bring new opportunities and developments for contractors and consultants. In such times many larger businesses turn to independent professionals over full-time employees. Already we’ve seen an increased demand for legal and financial consultants as businesses prepare for the upcoming changes of Brexit.
It was recently reported that 30,000 new civil servants are required to cope with the immense workload generated by Brexit. There’s likely to be an array of opportunities opening for talented contractors and consultants to get stuck in with the necessary work.
One of the main positives that can be taken from the Autumn Statement is the announced large scale investment into infrastructure and improving businesses’ output. A large amount of funding is set to go towards ‘hyper-fast’ broadband and 5G. In the short-term, these investments are likely to invite new contracts in technology fields. In the long run, faster connections across the country will likely improve businesses’ view of remote working, hopefully allowing more and more contractors to work with anyone, anywhere.
Alongside an increase in the country’s digital infrastructure, £23bn will be spent on innovation over the next five years. Contractors and consultants should look to play a leading role realising these new technological innovations.
The chancellor also announced a strategy for addressing productivity barriers between London and the rest of the country. He highlighted plans to invest in the local infrastructure in every region of England and is also giving small businesses in rural areas a tax break worth up to £2,900 per year by increasing the Rural Rate Relief. This could see new projects developing for contractors and consultants on their ‘home turf’ and may even offer the more entrepreneurial-minded among us incentives for starting their own startup companies.
Corporation tax and Personal allowance
Mr Hammond confirmed that Corporation tax will be reduced to 17% as planned over the course of a five year period. He also communicated that the plan remains to raise the tax-free allowance from £11,000 to £11,500 by April and then to £12,500 by 2020 as well as reiterating a commitment to raise the top threshold to £50,000. This confirmed commitment to reduce Corporation tax and increase the personal tax-free allowance is great news for independent professionals and business owners; who simply put, will be paying less tax and coming away with more of their earnings.
From April 2017, a new flat rate VAT category will be introduced specifically for service businesses. Currently, when using the flat rate scheme, a management consultant would pay VAT at a different rate to an IT contractor. As of April, service businesses (such as IT) will fall into a new category; with a new VAT rate of 16.5%. Once the new VAT flat rate has started IT contractors will typically see an increase from 14.5% to 16.5%. We’ll be in touch closer to April with more information on this change once the details of the announcement have emerged.
IR35 in the public sector
Following the announced intention in the summer budget of 2015, the Autumn Statement confirmed the government will be enforcing IR35 (referred to in the statement as off-payroll working rules) to independent professionals working in the public sector. IR35 was designed to stop contractors working as disguised permanent employees i.e. benefiting from the tax advantages of being a contractor.
IR35 is a complex subject. But simply put, it means if you are working in the public sector and IR35 applies to you, your agent will take responsibility for deducting income tax and National Insurance from your income. The currently existing 5% tax-free IR35 allowance will be abolished for those working in the public sector. If you are unsure if IR35 applies to you, there will be a self-service tool introduced to assess your status. If you’re engaged via an agent, they’ll perform the assessment for you.
To learn more about IR35, take a look at our Knowledge Hub.
Road and rail improvements
Finally, we also saw plans to release £1.1bn extra investment in English local transport networks, £220m to reduce traffic pinch points as well as investments into improving railway links. All these projects are likely to bring new opportunities for independent professionals. The commitment to deliver the Oxford to Cambridge Expressway will also cement development in technological areas. If nothing else, the travel improvements and cancelled fuel duty rise will benefit contractors who regularly travel and deal with clients across the country.