As you may be aware, the Autumn Statement has just taken place. There were some announcements that may impact on you as a Director of your own limited company, which we would like to bring to your attention.
VAT Flat Rate Scheme (FRV)
If your company is registered under FRV, the VAT percentage you pay will increase to 16.5% from 1st April 2017. Previously, your percentage varied depending on your industry.
In practical terms, this means that for an invoice of £500, inclusive of VAT, the amount of VAT due to HMRC pre-and post- 1st April 2017 would be as follows:
|VAT Charged on invoice||Pre- April 2017 Amount Due to HMRC||Post- April 2017 Amount Due to HMRC||Flat Rate VAT Saving to you Post-April 2017|
|Computer and IT Consultancy||£83.33||£72.50||£82.50||0.83|
If your company is not VAT registered, this does not apply to you.
IR35 reform for the public sector
Although IR35 was not mentioned specifically by the Chancellor in his speech, the following announcement was made regarding “off-payroll working rules”: –
“Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company.” … “In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.”
The IR35 test is applied independently to each contract undertaken, so it is possible that some contracts fall outside of IR35 and some inside. Consequently, these proposals will not affect those contracts falling outside of IR35, however if any activities are deemed to be inside then: –
- The company will no longer be entitled to claim the 5% of the turnover as a tax-free allowance; and
- All the company’s income net of any expenses allowable under employment legislation will be subject to taxation and national insurance as earnings.
As the onus for accounting for the tax and national insurance is to be moved from the company to the body paying the worker’s company it is not clear whether the body paying the personal service company will: –
- Be making enquiries to establish whether they are inside or outside IR35; or
- Simply pay all contractors as employees, to avoid any penalties for non-compliance.
The government has not extended the “off-payroll working rules” to contractors who work in the private sector.
The draft legislation will be published on 5th December 2016 allowing for an eight-week consultation period before it is finalised. It will come into effect on 1st April 2017.