The era of austerity is finally coming to an end, so announced ‘fiscal Phil’ this week as he delivered his pre-Brexit Budget. Despite having plenty of Halloween puns on hand, there were thankfully few unexpected scares in the chancellor’s red box. Among the announcements, we saw new government spending in the public sector, talk of a digital services tax and an overall focus on driving the UK’s economic future into a new chapter.

Here’s our summary of how the key measures of the 2018 Budget will impact the business and personal finances of Contractors, consultants and freelancers.

1. IR35, off-payroll working in the private sector

The big news for independent professionals was the announcement of off-payroll working rules being extended to the Private Sector from April 2020. The changes will see a shift in the responsibility for who determines the IR35 status of a contract from the contractor to the hiring private sector organisation.

Shortly after the budget, the government’s response to the consultation on off-payroll working in the private sector was published. Originally its rollout was planned for April 2019. The findings and response however, highlighted a number of challenges experienced during the public sector rollout therefore the decision was made to delay until April 2020.

With this extension, HMRC will publish guidance and support private sector organisations to address identified challenges. Their stated goal is to help businesses make employment status decisions with confidence.

The consultation response goes so far stating that when contract status decisions are made, the reasons for the decision will be accessible for those operating personal service companies. There are also proposed routes to assist contractors should they disagree with the business’ decision on employment status.

The CEST tool developed by HMRC was noted as lacking functionality and its usability could be improved. HMRC will continue to develop the tool during this additional time, a clear indicator of their commitment to CEST and its output.

As a former contractor I take a number of positives from the consultation. After 20 years of IR35, for many the uncertainty of contract status will reduce significantly as larger businesses take on this new responsibility. Their HR teams and legal experts, with the right education and support, will make status assessments for contracts they need to fill. The decision for a contractor on whether or not to accept a contract should become clearer.

HMRC recognise two thirds of contractors are correctly outside IR35 and this new approach aims to help them reduce costs of tackling non compliance. It is clear contracting is still alive and healthy, especially as you read on about government support to investment in business and technology.

2. UK investment in the technical revolution

With Brexit in sight, many of the Budget’s announcements focused on rousing business investment to ensure Britain remains competitive and at the forefront of development; especially in the ‘technological revolution’. We were particularly excited to hear about £1.6 billion of further funding for the Industrial Strategy, to drive productivity as well as investments into AI, nuclear fusion and quantum computing. Innovative areas where contractors and consultants will no doubt play a leading role.

With low employment figures, signs of continued economic growth, an estimated 800,000 more jobs created by 2023 and clear investment into forward-looking business – all the signs suggest that demand for independent professionals with specialist skills, especially in tech roles, will remain strong.

3. Personal allowance changes

The rate at which people will start paying income tax will rise from £11,850 to £12,500 in April next year. The threshold for higher rate income tax will also rise from £46,350 to £50,000.

This change comes a year early and the rates will stay the same for next tax year. It’s certainly good news for contractors and consultants; who will come away with more of their earnings under the basic rate tax band.

4. Entrepreneurs relief

Entrepreneurs tax relief was introduced to stimulate business start-ups by offering a reduction in Capital Gains Tax when the company was dissolved or sold. Most contractors don’t become fully aware of the relief until they end contracting but realise the benefits of it when they do.

After much speculation around entrepreneur’s relief, Hammond announced this Budget would not be re-allocating those funds elsewhere. The minimum qualifying period, however, has been extended to two years. So, from 6 April 2019, you will need to have owned an asset for at least two years to qualify. Shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief.

For the majority of long-term contractors who have spent the time building their business and investing savings, this shouldn’t come as any great change. You’ll still benefit from relief on the extra you’ve accumulated when you eventually close down or sell your company.

5. Travel costs

For the ninth year in a row, fuel duty will be frozen. This is estimated to add up to a cumulative saving of £1,000 for car drivers and £1,500 for van drivers. The millennial railcard will also be available nationally by the end of the year for everyone aged 26 to 30. It will offer up to a third off of most rail travel. If you’re a young contractor or freelancer regularly commuting to visit clients, it’s well worth looking into.

6. VAT registration threshold frozen

The VAT threshold is to remain a £85,000 for at least the next two years. Pre-budget speculation was a possible reduction of the threshold that would draw more small businesses into the VAT regime and increase their administration burden. To contractors however, VAT registration administration is minimal and the benefits outweigh the effort.

What’s next?

This year’s Budget was fairly low-key with an overall emphasis on backing enterprise for the high wage, high skilled economy of the future. It’s worth noting that the chancellor promises next year’s Spring Statement could be upgraded to a full Budget; if necessary following Brexit. With many of the new changes introduced not taking effect until 2019 or 2020, some longer-term policies could see amendment come the Spring.

Now is the time to be brushing up on your IR35 knowledge to ensure you and your clients are prepared for April 2020, we’ve got a host of materials available to help you out and over the next 18 months, we’ll continue to publish updates. With substantial investment being placed into innovation and technology, to keep Britain competitive in the wake of Brexit, keep your eyes peeled for both new innovative projects and opportunities for skill development.

The post Budget 2018: 6 key announcements for contractors and freelancers appeared first on inniAccounts.