Autumn Statement 2016

As the new chancellor delivered his first Autumn Statement there were a few items that caught our eye as potentially affecting our clients.

The income tax bands will increase as follows:

2016/17 2017/18 Difference
Personal Allowance £11,000 £11,500 + £500
Basic Rate Band £32,000 £33,500 + £1,500
Higher Rate Band £107,000 £105,000 – £2,000
Additional Rate Band over £150,000 £150,000 – +/- £0

The tax rates for all bands remain unchanged. This means that you will be able to earn up to £2,000 more before reaching higher rates of tax.

The government will meet its commitment to raise the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament.

The current corporation tax rate of 20% will reduce as follows:

  1. From 1st April 2017 to 31st March 2020: 19%
  2. From 1st April 2020: 18%

VAT Flat Rate Scheme – The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

  • capital expenditure
  • food or drink for consumption by the flat rate business or its employees
  • vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

This means that in some cases it may better for a contractor to operate under the normal VAT scheme, rather than the VAT flat rate scheme, after 1st April 2017.

From April 2017, it will be the responsibility of your limited company’s engager to determine if you should operate inside or outside of IR35. In most cases your limited company’s engager would be your agency. Sometimes this would be your end client.

As yet, it is difficult to say how this will work practically and how agencies will interpret the new rules. We are sure that further HMRC technical notes will follow in the months up to this change.

Contractors working in the private sector are unaffected by the new rules.  

Posted by Chris Mollan