Apart from the announcement of the private sector IR35 reform rollout in April 2020, the Budget 2018 has been generally favourable towards the contracting community. Experts believe that there was more positive news for the self-employed than negative ones in the recently announced Budget.
Here is a summary of some of the major announcements in the Budget 2018 that will be beneficial for self-employed and contracting professionals when implemented.
- Decrease in Corporate Tax — Contrary to the common perception, the Government did not backtrack from its promise to reduce corporate tax by 2 percent in April 2020. The reduction in taxes will not help private corporations including self-contracting individuals who intend to provide services through their own company.
- Improved Broadband Access in Rural Areas — The Government has also pledged to improve the quality of broadband services in rural areas by allocating a fund of £275 million. This is good news for self-contracting professionals as the majority of them in rural areas don’t have access to broadband services.
- Increase in Personal Allowance — Taxpayers including contracting professionals will benefit from an increase in income tax allowance to £12,500 in April 2019.
- Increase in New Enterprise Allowance (NEA) Funding — Considering the fact that NEA has been beneficial for disabled people in the UK, the Government has announced an increase in its funding. This will help over one hundred thousand disabled persons including those who are self-employed in the UK.
- Freeze in VAT Limit — The Government has also confirmed that the VAT limit will remain fixed at £85,000 till 2022.
- Recommendations to Increase Pension Savings of Self-Employed — The Government has announced that a report will be published later this year that will provide recommendations to self-employed to boost their pension savings. This is a serious matter given the fact that IPSE found only 31 percent of self-employed individuals contribute to a pension scheme. The Government report will outline a series of trials that will be tested in 2019 with close collaboration with IPSE.
Budget 2018 has certain negative points also that have been summarized below.
- No Tax-free Training — Despite the advise from IPSE that tax-free training will motivate contracting professionals to improve their skills, the Government has decided not to make any changes in this regard. Instead, the Government stated that the National Retraining Scheme (NRS) will allow self-employed individuals to develop the required skills.
- No Changes in Universal Credit — The Government has not made any changes in Universal Credit (UC) funding announced for employed individuals. UC does not account for the variable nature of income of contracting professionals. IPSE had advised changing the Minimum Income Floor, but nothing has been announced regarding the matter in this Budget.
- Landlords Can’t Claim Letting Relief against Capital Gains Tax — Landlords can no longer claim letting relief of £40,000 against Capital Gains Tax when selling a property. Moreover, the exemption period for tax calculation has been reduced to nine months. This will affect the rent paid out by freelancers.
Despite some shortcomings, the Budget 2018 has been favourable geared for both the employed and self-employed individuals. The Government has offered a decrease in corporate taxation, increased access to broadband in rural areas, increased personal tax allowance, and let the VAT limit unchanged. Moreover, the Government has rightly decided to extend the IR35 rollout to April 2020.
One serious issue that has not been addressed in the latest Budget was the consultation regarding the off-payroll employment status. The consultation that ended this summer asked comments from experts regarding IR35 employment status assessment. It is expected that the Government will submit the response to the consultation later this year, or early next year.