So the much trailed Summer Budget has arrived. Unfortunately, like a traditional British summer, the news for the freelancer and contractor market was very mixed.
The expected limitations on the claiming of travel and subsistence for Umbrella workers on an overarching contract of employment were confirmed. Less expected was an application of the same rules to most personal service companies (PSC’s) which will mean that a number of them will not be able to claim similar expenses. There will be a test of ‘supervision, direction and control’, which will be similar to parts of the IR35 legislation, but not exactly the same. An opportunity to make the picture clearer for PSC owners has apparently been missed.
Added to this was the news that tax on dividends has been effectively increased by 7.5%, although a new ‘dividend personal allowance’ of £5,000 per year has been introduced. This will have an impact on those people who use dividends as a large part of their drawings from the company. In addition, true PSCs will not be able to benefit from the Employment Allowance from next April. In reality this will have a small impact as many PSC owners take a very small salary, meaning the amount of Employer’s NIC relieved by the allowance is very small. This effectively puts the PSC owners likely salary levels back to 2013 levels, in terms of using the national insurance threshold to maximise tax efficiency. A much larger impact would be felt by contractors paying a high salary – to cope with the requirements of IR35.
And finally for contractors, the Government promised to look again at IR35 itself.
There is some good news on corporation tax – the rate is unexpectedly coming down further, to 19% in 2017, and 18% in 2020.
The expected changes to inheritance tax were announced – a couple with a reasonably expensive home will be able to pass on £1m tax free in the coming years. There were also expected increases in the personal allowance and confirmation that the volatile Annual Investment Allowance, which gives tax relief for the purchase inside a business of certain fixed assets, will be fixed from now on at £200k per annum.
There will be more detail in the days to come, but this year’s second budget will not be remembered fondly by the flexible workforce in the UK.