What the 2016/17 budget means for you

Screen-Shot-2016-11-02-at-12.49.45 What the 2016/17 budget means for you

What the 2016/17 budget means for you

When the annual Budget is announced, it can mean significant changes for many people, but while employees need often not worry too much about how any changes will affect them, that is not the case for the self-employed. For people who have their own companies and work as freelancers or contractors, it is important to know what the Budget means for their immediate future.

Self-employed in the UK

The UK currently has around 4.6 million people who are classed as self-employed, ranging from plumbers to professional services to psychotherapists, drivers, writers, artists and graphic designers. For such a diverse group of people, it is inevitable that the Budget changes will mean good news for some and bad for others.

For example, any self-employed person who works for a public sector client through their own limited company will now be liable to pay tax where before it was the responsibility of the contractor. This was a move to tackle those who avoided paying tax, but for the majority of Personal Services Companies (PSC) who paid their taxes this will be a blow, perhaps discouraging them from working on large-scale public sector contracts and thereby effectively losing a lucrative client base.

Fortunately, such a change applies only to the public sector and not to the private, which is where IR35 comes in. IR35 is a piece of legislation designed to tackle NIC avoidance and affects every person who does not fit in with the HMRC’s definition of ‘self-employed’. If a contractor does not fit exactly into this category, perhaps because they work via PSCs or business partnerships, then they may find themselves targeted as a tax avoider and face a significant penalty. For those who are unsure about their exact status in this regard, it is well worth getting help with IR35.

The introduction of IR35 has meant that paying tax has become very much simpler for those contractors and sole traders who know they are definitely self-employed businesses and the abolition of the Class 2 NICs means that there should be annual savings of around £134.

On the plus side for limited companies, the Budget did promise there would be a reduction in Corporation Tax, bringing it down to 17%, although this will not be implemented until 2020. In addition, from 2017, the Personal Allowance will increase to £11,500. Also, the Budget seemed to recognise that being self-employed often means experiencing fluctuations in income, so it is good to know that those who need to take money out of their Lifetime ISA will not be penalised too severely if they replace it later on. This will help self-employed people save for their futures.

Unfortunately, not much progress has yet been made in maternity pay for freelancing mothers. It had been hoped that the Budget would bring self-employed maternity pay in line with those of employees, but it seems this is something expected to happen in the near future.

Budget announcements and changes can be confusing and seismic for the self-employed and it is always best to be fully informed on how changes will affect such businesses, either through advice given by the HMRC or by a management company who deal with such changes every day.