Budget 2017: how it'll hit contractor finances

With today’s Budget 2017 set to be tuned into by contractors because of the sombre mood music played of late about IR35 reform, and its possible playing out in the private sector, any cacophony when Philip Hammond sits down is unlikely to be because of contractors’ personal finances, writes Luke Somerset, IFA at Contractor Financials.

Higher threshold trio

But the small-scale, low-key announcements that the chancellor is expected to vocalise can’t afford to be blocked out. Each will individually crank up to affect your pocket to a potentially voluminous degree, even if some are already known about. The personal allowance rising to £12,500 for example; corporation tax heading for 19% and the higher rate threshold destined for £50,000.

Stamp duty ascending

Stamp duty is another song that’s already been sung by the chancellor, as the headache for many hit next month a year ago. But in the residential market, because the number of buyers paying the tax has climbed to a 10-year-high, Mr Hammond could well lift the threshold at which the duty is payable. It’s currently set at just £125,000.

Further (helpful) uplifts

Another threshold the chancellor will pitch higher -- if a Sunday broadsheet gets its way -- is the Annual Exemption. Under it, £3,000 can be given away tax-free each year but this limit seems ripe for uplifting, as it has been frozen since 1981.

The Small Gift Allowance and the Wedding Gift allowance are the other IHT-related allowances that the Sunday Times has been campaigning for Mr Hammond to increase. Now more than ever, then, they may move upwards, which contractors would likely welcome.

ISA (ISA Baby)

Definitely on the up is the ISA allowance -- a fact that the chancellor is bound to trumpet to savers who are downbeat about rising inflation and a cut (again) in Premium Bond winnings. So the maximum you can stash in a tax-free savings account will rise from April 5^th 2017 to a massive £20,000, compared with a comparatively meagre £11,200 today. Also from next month, the LISA launches, as does the delayed peer-to-peer investments ISA.

Pensions will be flat

One area of your personal finances as a contractor where we don’t think the chancellor will fine-tune is pensions. This is something we’ve not been able to say for almost all the recent Budgets and Autumn Statements, but nest eggs will likely come out flat. Or more specifically, we don’t anticipate any noteworthy changes to pensions.

BTL chords

If only we could guarantee he’ll do the same with Buy-To-Let (BTL). As a still relatively unknown conductor of the government’s policies, this fiscal conservative’s stance on BTL is still unclear. However, since his predecessor’s successive changes to the taxes that property investors must pay, Mr Hammond has witnessed the housing economy change, generally.

Moreover, BTL buyers have moved to limited company vehicles as a way to soften the harsh impact of these tax changes. So the chancellor can really only play one of three chords in response -- make no change (which we’d support), reduce the stamp duty levy of 3% on BTL properties (which contractors would support) or close the limited company ‘loophole.’ The latter is an improvisation we hope he doesn’t resort to. It would be punitive for landlords and property novices, including contractors investing in bricks and mortar instead of, or in addition to, a pension.

One-man bands

Both landlords and contractors are covered by Making Tax Digital. We support calls for clarity in this area, particularly on what the threshold will be for contractors running their own PSC, and from when. The MTD scheme also covers freelancers operating as sole traders. For them, the recent mood music has been equally negative, thanks to overtures by the Institute of Fiscal Studies, the head of the Taylor Review and the Resolution Foundation. 

All the tones being sounded in responses from the government suggest that the chancellor will increase NI contributions from the self-employed, or do something else to pare back their potentially preferential tax treatment. Although such a move is likely to have only a minimal impact on umbrella or PSC contractors’ take-home pay, it would be an unwelcome sign that there is disharmony towards business soloists.

Finale

While watching the Budget later today, or reading in print afterwards, all of the tones we’ve said here that the chancellor could strike might fade with importance if IR35 is going to be his crescendo. For the UK’s audience of contractors, it’s akin to the business rate relief that retailers will be keenly listening out for. But the imminent Red Book’s IR35 mention could still be little more than a prelude to medley of announcements by Mr Hammond that might have more tempo -- and more range -- to affect your base pay. Our exclusive analysis for ContractorUK of all the big personal finance announcements for contractors will follow here tomorrow morning.