Autumn Budget 2017: Contractor's Personal Finance Preview

Cast your minds back contractors and you might remember that following the Spring 2017 Budget and the Finance Bill, the government announced that it would move to one ‘fiscal event’ a year, with the first of these being published today -- Wednesday November 22nd 2017, writes Jason Powell, the chief executive of CMME.

The financial backdrop

The chancellor of the exchequer, Philip Hammond, finds himself in the unenviable position of needing to build up a war-chest to soften the potential blow to the economy, should the country find itself trading with Europe under World Trade Organisation rules, come April 1st 2019.

But earlier this month, on November 3rd, the Bank of England announced a rise in the base interest rate from 0.25% to 0.5%. This was the first rise in interest rates in 10 years. There is also a market expectation for there to be a further two small rate increases, over the next three years.

Given these shackles, Mr. Hammond is unlikely to be giving much away in the imminent Budget.

We’ve seen some restraint from him already, given that he had pledged in March to abolish "Class 2" National Insurance Contributions (NICs), which are paid at a flat rate of £2.80 a week by anyone making profits of more than £5,965 a year. But ahead of his statement today, the Treasury quietly announced that Class 2 self-employed NICS of £148 a year would now not be abolished until April 2019.

Another issue weighing on the government’s ‘bottom line’ is the fact that it is politically tied to the expensive Triple Lock Pension Guarantee on the basic state pension. Speculation has therefore been rife that this afternoon will see the chancellor target tax relief on pension contributions to meet these spending obligations.

Reliefs, rates and reactions

Under current rules, tax relief is linked to the personal income tax rate of the saver. Currently, a higher rate taxpayer may claim relief on contributions up to £40,000 at 40 %, while those on the basic rate are given relief at 20 %. It is speculated that the government may move to a flat rate of around 33 % -- a change that could hit middle earners the hardest.

Mr Hammond may also take the opportunity to announce the results of a year-long review into the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). EIS provides tax relief worth 30% for investments in high-risk companies plus a Capital Gains Tax exemption on disposal of the shares after a set period.

The tax consultancy firm RSM has correctly pointed out that the EIS has been a useful source of finance for start-up companies since its introduction in 1994, enabling investments of £15.9 billion in around 26,000 companies.

However because of a view that the EIS is as a way for the wealthy to avoid paying up to £300,000 of tax, RSM predicts that this Budget could see the government cut the relief from 30% to 20% and increasing the period EIS shares have to be heldThese sound like entirely feasible predictions, made more creditable by the current political climate and the furore over the so-called 'Paradise Papers.'

Housing

Somewhere else that there’s growing dissension is in and around the housing industry. It identifies that Stamp Duty Land Tax (SDLT) remains at a historic all-time high, while recent data from the Royal Institute for Chartered Surveyors points to a cooling within the residential market.

Industry experts have called on the chancellor to use the Autumn Budget to address SDLT, as they believe the duty is a major deterrent to home-movers. There is also speculation that stamp duty for older homeowners may be reduced, to encourage people as they approach retirement to downsize, freeing up housing stock for younger families. Another suggestion to Mr Hammond is to reduce SDLT for properties over £1 million, which currently generates 30 per cent of all SDLT revenues to the government.

Outside of housing, business leaders have called on the chancellor to provide some certainty in light of Brexit. Their demands are many, but a key one for him to forego a rise in business rates would limit the Treasury boss’s room for maneuver, especially as there is growing political pressure to help millions of low–earning families, further to demands to lift the 1% pay cap on all public sector employees. The problem if you’re a contractor hoping not to get pinched? All of these things will require funding, and the money’s got to come from somewhere.

Consequences for contractors (cont)

Overall, we do not expect the government’s first Autumn Budget to give much away. Worse still, there are areas said to be under review by the chancellor, such as IR35, potentially the dividend tax and the general tax position of people who work for themselves, that have the potential to ‘rock the boat’ for many of our clients. And while we don’t think today's statement will require a need to man the lifeboats come the evening, it is likely that some preparation around your personal finances as a contractor will need to be put in place. We’re on hand to guide you through making the most of the allowances that are currently available -- one of the first and foremost steps that shrewd contractors should look at taking.

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