WARR & CO ACCOUNTANCY BLOG
Delivered by Philip Hammond as his first and only, The Autumn Statement 2016 released in November brought with it many changes to the way we will do business going forward.
Here are the Autumn Statement 2016 highlights;
- We will have a Spring Statement and an Autumn Budget going forward
- £23 billion ‘innovation and infrastructure’ fund for national productivity investment over 5 years
- Increased funding for affordable housing
- £400 million for venture capital funds to unlock £1 billion for start-ups
- Corporation tax to fall to 17%
- Employees will start to pay tax at £12,500pa and pay the higher rate from £50,000pa from 2020
- Over £102 million of LIBOR banking fines to be donated to more than 100 charitable causes
We’re going to look into a few of the latest changes that are likely to affect our clients below.
VAT Flat Rate Scheme
The change to the VAT Flat Rate Scheme is likely to affect many contractors and sole traders. The changes will be the most pronounced for those who spend little business money on goods, such as raw materials (spend on services is not included here).
Currently the scheme simplifies the VAT due by allowing for a flat rate percentage based on the business type, see the full list here. For example, Computer / IT consultants are charged at 14.5%, Business Consultants at 14%.
The Autumn Statement has introduced a new business sub-type, called “limited cost traders” which will apply to any business which have very little out-goings. For these businesses, the VAT due will be increased up to 16.5%. Your business will be classed as a “limited cost trader” if you spend less than 2% on goods (not services) in a VAT quarter. In addition, if your business spends less than £250 per quarter on goods, you’ll be counted as a “limited cost trader”, even if your spend on goods is over the 2% threshold.
Many contractors will fall into this new category, and so must be aware that the VAT they will pay will be higher. If you’re concerned that this change will have a negative impact on your business in 2017, give us a call to discuss your options. It could be time for your business to ditch the VAT Flat Rate Scheme and employ our services to take the hassle out of tax. One such service is our Encompass service for Contractors, you can read all about it on this link.
This change comes into full effect on 1st April 2017, however current goods purchases (or lack there of) in this quarter may well affect your VAT Flat Rate Scheme status post 31 March 2017.
IR35 for Public Sector Contractors
Adding to the tax complexities that contractors have ahead of them with the changes to the VAT Flat Rate Scheme are the changes to IR35, specifically for public sector contractors.
From April 2017, it is the entity that pays the contractor who will decide if that person falls within IR35 and the public sector employer or the recruitment agency will be responsible for operating PAYE. Contractor’s take-home pay is likely to be significantly impacted.
There are issues not yet addressed, however, which include how to deal with agencies or public bodies who would rather ‘play it safe’ by considering all contractors as working under IR35 and how contractors can appeal against the IR35 ruling if they disagree. What is likely, is that many contractors currently working in the public sector will be more cautious when it comes to renewing or signing a new contract, which could go on to cause significant trouble for public sector bodies.
We’ll report back on this matter once further information becomes available. Feel free to give our team a call or sign up to our mailing list (complete the pop-up below) to be kept up-to-date by our team.
Cutting Corporation Tax to 17% & £400 Million Investment in Innovative Small Businesses
A massive 11% reduction in corporation tax over the 10 year period between 2010 and 2020 has been announced with the hopes that this will attract businesses to the UK in the wake of Brexit. This new corporation tax rate will be by far the lowest in the G20.
In addition to attracting new businesses, this is good news for small businesses in the UK, who will also benefit from a £400 million fund to help innovative small businesses.
As usual, the Autumn Statement 2016 brings a mixture of positive and negative. Our team are ready to help you navigate your business over the next few months to ensure you achieve the maximum gains with minimal penalties.
Contact our team today on 0161 477 6789 / 02031 741 436 or email firstname.lastname@example.org if you’d like to discuss any of the changes we’ve raised in this blog.