Chancellor George Osborne is set to announce his latest Budget on Wednesday, and there could be a number of major changes for flexible workers, including new rules on the manner in which dividends and travel expenses are taxed and a restriction on Employment Allowance.
The dividend tax hike is set to implemented from 6th April and will see completely new set dividend tax rates in place of the current system of tax credits. Experts predict that taxpayers working through a limited company could be the most affected by the new rules, with those earning an £100,000 on annual basis likely to see an estimated £7,500 reduction in take-home pay.
New travel and subsistence expenses legislation will also come into force on the same day next month, which means that contracting professionals under the supervision, direction or control (SDC) of a client they are working for will be no longer be able to claim tax relief. This change is set to have a significant impact on these flexible workers, with HMRC expecting it to hit 430,000 people, though non-IR35 limited company contracting professionals won’t be affected except when they are caught by IR35 rules.
The Employment Allowance, a measure that allows eligible businesses to receive up to £3,000 in Employers’ National Insurance, is also set to be restricted next month. Individuals who are the director of a company and the sole employee will no longer be eligible. Those who have been caught by IR35 are already unable to claim for this incentive.
Mr Osborne has focused on IR35 in previous Budget announcements, but it is expected that he will make no mention of it this time around, as it was omitted from the draft Finance Bill 2016. However, the Chancellor could return to the issue in the near future with further tests and criteria especially for government workers. The Budget is expected to announce a new and improved “Employment Indicator Tool” for flexible workers.
Further announcements that could feature in the Spring Budget include a 3% Stamp Duty “surcharge” for contracting workers who purchase a second home, a rise in the income tax threshold to £11,000 and a slight reduction in the additional income tax rate band back to the previous 40p limit. Meanwhile, plans for changes to pensions tax relief are likely to be put on hold due to the current political and economical climate. There may be also be a reference to the controversial Accelerated Payment demands scheme as part of HMRC’s continued clampdown on tax avoidance.