The budget. What it means for contractor’s and the self-employed
No change to Stamp Duty.
The number of house buyers paying Stamp Duty is now at a 10 year high. Under the current government regulations, homes purchased for under £125,000 are exempt from this tax.
But, with the property bubble getting worse, and the average deposit for a home in London now exceeding £100,000 (with an average £6,000 stamp duty fee) this is increasingly being seen as a major obstacle in the path of first time buyers.
However, the Chancellor Philip Hammond, against many predictions, decided not to make any changes to the Stamp Duty threshold in his 2017 budget.
Dividend Tax cut.
Company directors and private shareholders will have their tax-free allowance on dividends cut from £5,000 to £2,000 from April 2018.
National Insurance hike for the self-employed.
Because more people are choosing to work for themselves than ever before this results in less cash going to the Treasury. And it is widely believed that the current tax system is one of the biggest driving factors in the move towards self-employment.
Contractors and the self-employed pay different tax rates because they have different arrangements, but the new state pension has to some extent removed this disparity.
Mr. Hammond said it was not fair for self-employed workers to pay substantially less than employees.
“Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way,” he said.
He is therefore considering reversing George Osborne’s decision to abolish class 2 NICs, and will be increasing class 4 NICs paid by self-employed workers with profits of over £8,060 a year, to 11% by 2019.
Higher risks but now with lower rewards.
Although there was some good news with the announcement that there will be no change to pension allowances, many of our clients will start to feel that they are being taxed more over the coming years, with Mr. Hammond quoted as saying that the Treasury will raise an extra £145 million by 2021-22 through extra tax on the self-employed.
At Contractor Financials we believe that this is a short-sighted point of view.
What the Chancellor doesn’t take into account is that although there may be some tax advantages in being self-employed or a contractor, there are much higher risks involved working for yourself.
For example, employees in a traditional company have the safety net of a guaranteed monthly salary, paid sick leave and the luxury of paid leave should they want to take some time off. When you’re self-employed you enjoy none of those benefits.
If you would like to know more about what the 2017 budget means for contractors and the self-employed, call us today on 0333 370 8888.