How Does The 2016 Budget Affect Freelancers & Small Businesses?

As of April 2017, 600,000 small businesses in the UK will not have to pay business rates, while 250,000 businesses will pay lower rates. This has been welcomed by our coworkers and small businesses with open arms since Mr Osborne announced his 2016 budget, and for good reason! High streets have been left desolate due to unaffordable business rates, smaller family-owned businesses being the worst affected. Let’s take a look at what else is going on in this budget.

First off, there has been an increase in the Income Personal Tax Allowance from £11,000 to £11,500 in 2017-2018, and also an increase in the higher rate tax threshold from £43,000 to £45,000 in 2017-2018. This decreases the amount of tax that you pay (yay!) on your wages.

If you’re a Limited Company, Corporation Tax will also be reduced to 17% (currently 20%) by 2020 which will reduce costs for multinational businesses. Corporation tax is the tax payable on any trading profits, chargeable gains or investment. Considering Corporation Tax was 24% for companies turning over more than £300,000 in 2012. As for company directors who take out dividends, it’s not looking so bright. The chancellor announced that as of 6th April, the 10% dividend tax credit will be cut, and in its place is a £5,000 dividend tax allowance. As a basic rate tax payer, you will be charged 7.5%, 32.5% for higher tax rate and 38.1% for additional rate payers. This is an increase from current rates and smaller business directors will be most affected by the proposed changes.

There is also a steep reduction is Capital Gains Tax from 18% basic rate to 10% and from 28% to 20% on the higher tax rates. If you are unsure of what Capital Gains is and what you pay it on, UK Government explains it here.

If you are a freelancer or casually do some part time work, you will no longer need to declare or pay tax on the first £1,000 you earn, which is a huge step up for eBayers and Amazon sellers. This is also the case of casual workers like those for Lyft and Uber and freelancers.

Also, Class 2 National Insurance Contributions for self-employed will be scrapped, and you will only have to pay one type of National Insurance on earnings above £5,965. Mr Osborne also stated that he would deliver on a pledge to cut tax by at least £130 each for 3 million people who are self-employed.

To support the self-employed and freelancers even more so, the new lifetime ISA where the government gives you £1 for every £4 saved is a great alternative to a pension. “For the self-employed, it’s the kind of support they simply cannot get from the pensions system today,” Mr Osborne has been quoted as saying, and I agree. You can either save up the cash in this ISA for a mortgage on a house, or you have the opportunity to leave it in there until your 60th birthday and use it as a pension instead.

Key Points:

• Increase on income personal tax from £11,000 to £11,500
• Increase in higher tax rate threshold from £43,000 to £45,000
• Corporation Tax to be reduced to 17% by 2020
• Capital Gains Tax decrease by 8% on both rates
• Freelancers won’t pay or haveto declare on the firsr £1,000 they earn
• Class 2 National Insurance will be scrapped
• New lifetime ISA introduced

HMRC are also keen to push for digital tax returns and are investing £71 million to make it quicker and easier for self-employed and small businesses to contact them. The aim is to be able to contact them quicker at a time convenient to you, as well as lower call waiting times, a secure email service as well as web chat and phone lines open 7 days a week. This is expected to come into force from April 2017.