What can Limited Company contractors expect from the Budget 2017?

With less than two weeks to go until Mr Hammond’s first (and last) Spring Budget, now is the perfect time to review what tax changes are on the horizon from April of this year.

Public sector IR35

From April 6th, onwards, for Limited Company contractors who are currently contracting within the public sector it will be the responsibility of the fee payer to determine the contractor’s IR35 status. If found inside IR35 they will be taxed at source, meaning the client will ultimately end up paying more for using contractors, and the contractors themselves will be taxed heavily. 

It’s also worth understanding that should a Limited Company contractor working in the public sector be caught by IR35, they cannot use the flat 5% allowance against their Corporation Tax bill to cover the costs of running their Limited Company.

There are still many unanswered questions that are leaving both the contracting community in the dark, with plenty of ‘what ifs’. Our MD Paul Gough recently documented his thoughts on the changes and what each stage’s engager will have to prepare for.

Flat Rate VAT Scheme (FRS)

From 1 April changes are also on the way for the FRS. On the current FRS system contractors would charge 20% on their invoices, but pay it back to HMRC at a lower rate, meaning there was a small cash advantage to using the FRS.

Changes from 1 April will mean that previous percentage of applied VAT paid back to HMRC will rise to 16.5%, and can only be applied to a very limited number of claimable goods that are purchased wholly and exclusively for the use by the Limited Company. If you were to purchase goods that have a mixed personal element, they would be exempt. The following goods are also not claimable:

1. Any food or drink purchased for consumption by the company, or its employees. Subsistence when travelling is included within this

2. All costs relating to any company vehicles, including fuel and parts

3. Capital expenditure, such as computers, mobile phones, equipment, a tablet or printer

Expenditure on services are also completely excluded, meaning travel costs (such as train fares, flights, mileage claims, parking, accountancy fees, legal services, software, etc) are not claimable. For more information on the impact this will have on Limited Company contractors, take a look at our blog.

Corporation Tax

It’s not all doom and gloom for Limited Company contractors, as there will be a reduction in Corporation Tax from 20% to 19% from 1 April. It’s predicted to continue to reduce by 1% year on year, until 2020 when it will reach 17%.

The very last Spring Budget

At the 2016 Autumn Statement Philip Hammond announced that the 2017 Spring Budget will be the last of its kind, as from 2018 there will now only be the one Budget each year - the Autumn Budget. There will also be a new Spring Statement which is predicted to be a response to public finances and overview of the latest forecasts.

What will the Budget mean for you?

We will be covering the Budget with our exclusive blog that will outline what the outcomes mean for Limited Company contractors, both now and in the upcoming tax year. Be sure to keep an eye out for our blog on 9 March to find out how you could be affected.