What a contractors' IFA made of Budget 2017
It’s not often that our firm of independent financial number-crunchers is more struck by the motivating force of a chancellor’s statement than its raw figures. In this sense, Budget 2017 is a bit of an exception, writes Luke Somerset, IFA at Contractor Financials.
A different type of Budget
Also unlike a lot of other recent Budgets and Autumn Statements, Philip Hammond’s first (and last) Spring Budget was not the most dramatic, nor the most riveting despite his repeated (and probably better than forecast) jokes.
No block on ‘Ltd’ buy-to-lets
The exceptions continue because unlike the many Budgets we can remember, Budget 2017 had nothing to say about the housing market. So ‘no news is good news’ if you are a buy-to-let investor, shrewdly using a limited company to house your portfolio. There was a fear Mr Hammond would head this off.
There were lots of unfriendly gestures yesterday, however, all made by the chancellor to the people we regard as our clientele – contract, freelance and self-employed professionals. This Budget selected them as the motivating force of the government’s tax rises (Class 4 NICs up), tax-free allowance cuts (£5,000 dividend waiver down) and negative rhetoric (‘self-employed are not equally paying for public services.’).
So Mr Hammond suspects – no, he seems convinced – that many contractors are only shouldering a business on their own backs because they want apparent tax advantages over employment. It is this perceived ‘unfairness’ that the chancellor is committing himself to address, while apparently ignoring the fact that being self-employed or a contractor is riskier than employment and carries none of the benefits and support of a 9-to-5 and its regular pay cheque.
Given this extremely aggressive stance against one-person ventures, incorporated or not, I urge freelancers to better educate themselves about their finances, so that they can plan for the long-term. Doubters of this heartfelt tip should just look at the tax-free dividend allowance. It was only introduced less than two years ago, and was yesterday more than chopped in half.
Hammond’s headline non-actions
As to the Budget 2017 announcements you’ll welcome for avoiding cuts, there was:
- No change to the pension allowance
- No heading off ISAs rising to a maximum allowance of £20,000
- No heading off the personal tax-free allowance rising to £11,500
- No heading off the higher rate threshold eventually climbing to £50,000.
Hammond’s headline actions
As to the Budget 2017 announcements you might welcome for taking some action:
- Use of the ‘cash basis’ scheme will be extended to unincorporated landlords
- A £2K voucher for childcare will be offered to working parents of under-12s
- Working parents of 3/4-year-olds will get free childcare entitlement of 30hrs a week
- Fuel duty to remain frozen (at 57.95per litre)
- A new NS&I bond will pay 2.2% on deposits up to £3,000.
Due to some of these slightly helpful actions, and his slightly helpful non-actions, some contractors may be pleased with the chancellor’s offerings yesterday, even if they (and he) confounded expectations.
Our triple-lock recommendation
But the bigger picture for single-person traders is worrisome. Good information, good advice and good planning are the best triple-lock that we know of to keep Mr Hammond’s intended squeeze on such professionals to a minimum. There are legitimate options available for you to reclaim or utilise investment for tax relief in a few different forms. Now more than ever, using them should become your rule, not the exception.