What is the Flat Rate VAT Scheme?
The Flat Rate VAT scheme is an alternative to the standard VAT scheme which offer businesses that meet certain criteria, a simpler way of accounting their VAT transactions. This was introduced to reduce the administration burden on smaller businesses meaning reducing the need to record the VAT element on purchases and supplies.
What is changing?
At the Autumn Statement on 23 November 2016, the Chancellor of the Exchequer announced the introduction of a new 16.5% VAT flat rate for businesses with limited costs, such as contractors companies who are labour only businesses from April 2017. This will reduce the benefits of the Flat Rate scheme for some firms, but it will still be a simpler way to record VAT transactions.
Who does this apply to?
The government have created a guideline for limited cost traders. Businesses deemed to supply labour only services will have to use the new 16.5% rate under the new rules.
The definition of a limited cost trader is: a business that spends less than 2% of its sales on goods and not services. Amounts spent on goods must not include purchases of the following:
HMRC will provide further guidance on the changes and we will update further as and when they do. Until they do this, it would be worthwhile to review what any changes may mean for you.
During this years Autumn Statement, the Chancellor Philip Hammond announced that from April 2017 new rules would apply to those working ‘off payroll’ (working through your own limited company) within the public sector. This is the biggest shake up for contractors and freelancers working in the public sector for a number of years and is effectively the government trying to tighten the rules surrounding IR35.
What do these new rules mean for contractors and freelancers?
Currently it’s your responsibility as a company director to determine your IR35 status. However from April 2017 the government is shifting the liability to the engager. This means that the responsibility of determining your IR35 status will be with the public sector body, agency or nearest related party.
To help the engager the government will be releasing an online tool to help them determine whether or not IR35 is to be applied to the contract.
If the rules are found to apply then they will be responsible for deducting income tax and National Insurance from contractors invoices.
During the budget announcement the Chancellor also announced the removal of the proposed 5% tax free allowance of invoice value. Therefore the full amount of the invoice value will be covered by rules and taxed as a full employee. However, despite being taxed as an employee contractors will not receive the same employment rights such as holiday and sick pay.
These new proposals have been met by strong opposition and concern by contractors and contractor bodies such as IPSE and even by the governments own office for Tax Simplification. Despite this the Chancellor has announced that this will be coming in from April and therefore those working in the public sector will have to be.
Over the coming months we can expect the government to publish further details regarding the new rules along with its online tool. Until these are released there is little information on how this tool will determine contractors status.
Once further information becomes available we will keep you updated.
The tax free personal allowance will rise to £11, 500 from April of 2017. The allowance will then rise to £12,500 by 2020. The higher rate threshold will also rise to £50,000 by 2020
National Living Wage
The National living wage will increase from £7.20 to £7.50 in April 2017.
Tax- Free Childcare
Tax free childcare will be introduced in early 2017 this will provide savings of up to £2000 per child.
Increased Infrastructure Funding
A 5 year National Productivity Investment Fund of £23bn will be introduced to drive investment in infrastructure. The fund will focus on the key areas of transport, digital communications, research and development (R&D) and housing. This funding has potential to create many jobs for contractors across many industries.
As predicted the government will stick to its previous pledge to reduce corporation tax to 17% by 2020.
From April 2017, the national insurance threshold for both employers and employees will be aligned at £157 a week. The Chancellor estimated this will be an additional cost to businesses of £7.18 per employee
From April 2017 employers and employees who make use of salary sacrifice schemes will be subject to the same tax as cash income. There will be certain exceptions, such as ultra-low emissions cars.
Local Growth Fund
£1.8bn from the local growth fund will be allocated in different English regions. This includes £556milllion in the North and £542million in the midlands and East of England.
Phillip Hammond will stand up on Wednesday to deliver his first statement speech as the new tory chancellor. So, what can we expect as the first major speech he will deliver in the job? Reportedly he will leave more of the policy announcements to his colleagues but will cover the broad direction of what will be expected. Much of the announcement will figure around the big event of the summer – Brexit and the deficit the country has. Mr Hammond admitted himself “We still have a significant deficit in this country. We have to prepare for the economy for the period that lies ahead. We have to make sure the economy is watertight.”
The statement on Wednesday will be a yardstick as to the thoughts of the new chancellor’s direction for small businesses and enterprise. We will be tweeting live on Wednesday the 21st, so feel free to join us and ask any questions.
It's that time of year again!! Move over John Lewis & Buster the boxer it's the Imajen Accountancy Christmas advert with Roy the robot!
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