The dust has settled a little on the last ever spring budget announced by Phillip Hammond last week. There are a few areas that will directly impact Creatives, the self-employed and SME’s. It was a varied outcome for the creative industries, with some tax breaks for small businesses and a shake-up in tax rules for the self-employed. This could see freelancers increasing their fee to cover the new tax hikes. Below are the main areas that could impact you. For further information or if you have any concerns as to how this will affect you or your business get in touch with your WardWilliams Creative specialist.
National Insurance for the Self Employed
We knew that Class2 NIC’s were being abolished in April 2018, however in last week’s Budget the Chancellor announced that when they go, Class 4 NICs will increase from 9% to 10%, with a further increase of 1% planned the following year. This means sole traders and partners whose profit exceeds £16,250 a year will see their NIC bills increase overall. This could have an effect on self-employed entitlements to State Benefits, such as the State Pension, as these are currently paid for through Class 2 NICs.
The increase in Class 4 NICs by 1% will cost a self-employed individual up to £368 per year and increase by a further 1% from April 2019 – a cost of a further £368 per year.
**Since publishing this article the government has made a U-turn on its decision to raise NIC contributions for the self employed. Hammond had this to say in a letter to Tory MP’s:
“IN light of what has emerged as a clear view among colleagues and a significant section of the public, I have decieded not to proceed with the Class 4 NIC measure set out in the budget.”
“There will be no increases in NICs rates this parliament”
The abolition of Class 2 NIC from April will go ahead, further announcements will be made in the Autumn budget.
Making Tax Digital & Cash Basis Accounting
Again, we knew that digitising tax (MTD) was coming, but changes were announced that impact on the timing of this change for smaller businesses. Businesses with a turnover below the VAT threshold (£83,000) will have an extra year to prepare. Businesses with annual sales above £10,000 but below the VAT threshold will now have until 2019 before Making Tax Digital kicks in. However, businesses with annual sales above the VAT threshold will still have to comply by next year. The impact of the £10,000 threshold means that some businesses will be caught in the position of being under the Personal Allowance, but over the MTD threshold, therefore having to report their business finances quarterly to HMRC via digital tax software.
Cash Basis Accounting
It was also announced that more freelancers will be able to prepare their business accounts using “cash basis”. The idea behind cash basis is to allow some businesses to work out their profit based on when money comes in and goes out. This means you would count income from when the invoice is paid rather than issued.
From 6th April 2017 sole traders and partnerships can start to use cash basis if their sales are under £150,000 p/a. If they’re already using it, the threshold has been increased from £83,000 to £300,000 p/a.
VAT registration threshold will increase from £83,000 to £85,000 on 1st April 2017. The threshold for de-registering for VAT will also increase from £81,000 to £83,000 at the same time.
Dividend allowance has been reduced. Limited company shareholders can currently receive up to £5,000 in dividend income tax-free. This will fall to £2,000 from April 2018. So directors/shareholders of a limited company, who take a low salary and make the rest up with dividends, will pay more tax.
Corporation tax will drop to 17% by 2020, from its current 20% which will be the lowest rate in the G20. From April 2017 corporation tax will fall to 19%, and after this it will fall again to 17% in 2020.
If you have any concerns or would like to review your accounts get in touch with us today.
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