Important changes in the new tax year
New tax rates will increase take home pay
Starting, from April 6 2017 tax allowance bands are increasing across the board and benefiting every contractor that earns more than £11,000.
The Personal Allowance has increased from £11,000 last year to £11,500 this year, while the Basic Rate has increased from £32,000 to £33,500 and the Higher Rate has gone up from £43,000 to £45,000.
Public sector IR35 changes
Also from April 6, long-dreaded changes to IR35 rules governing contractors in the public sector take effect. These changes mean that a public sector contractor, operating through a limited company, will be automatically classed as inside IR35. This means that the paying party (usually the agency) is required to make deductions for Income Tax, Employer’s and Employee’s National Insurance before paying the contractor’s Limited Company
This will result in many more public sector contractors being classed as inside IR35 and facing a take home pay cut of up to 20%.
To mitigate some of the effects of the IR35 change on take home pay, many public sector contractors are moving on to umbrella schemes.
Changes to the flat-rate VAT scheme
This change took effect from the start of the month and will affect certain limited company contractors, who use the flat-rate VAT scheme and don’t spend a lot of money on purchases like goods or raw materials.
The move will see ‘limited cost’ traders go onto a new 16.5% flat VAT rate. This rate is a bit higher than all other VAT flat rates and could make the scheme unviable for many service-providing contractors.
Corporation tax cut
And we will finish on a positive note, with the news that from 1 April, corporation tax was reduced from 20% to 19% and will fall even further to 17% by 2020.
This change will be welcomed by contractors who operate through limited companies and have to pay the rate.