Flexible Working: what’s changing for contractors?
Contracting and Freelancing is becoming an increasingly popular option for mothers across the UK. Research by IPSE (Association of Independent Professionals and Self-Employed) shows that the number of mothers working as freelancers between 2008 to 2016 increased by 79%. This means that there’s more mumpreneurs than ever recorded before.
As a contractor, you are essentially your own boss. This means that you could determine the location of your work, the working hours, the daily rate and a handful of other factors. Contracting can allow for a flexible work/family life balance, as you can opt for flexi time, shift working, part-time or even home working.
As of April 2017, a few significant changes will be made to the way contractors and freelancers will function. The Spring Budget statement which took place on 8 March, directly affects self-employed workers, freelancers and contractors, as more changes have been announced.
It can be difficult to decipher public announcements, such as the Spring Budget as you may not know what’s relevant to you. We’ve rounded up everything you need to know as a working mum; whether you’re a contractor, freelancer or self-employed.
Reduction in tax-free dividend allowance
The tax-free dividend allowance has been reduced from £5,000 to £2,000, effective from 6 April, 2018.
What’s a dividend allowance?
As a contractor, you can either incorporate your own limited company, or join an umbrella company; an external company to run your contract through. If you are the shareholder of your limited company, one of the ways to pay yourself would be through dividends. The government allows a tax-free allowance for dividends.
There are many accountancy packages that offer a limited company formation as part of the package, but be sure to look around to compare prices. Take advice from your accountant to choose the best option for you, but keep in mind the upcoming legislation changes.
Increase in National Insurance Contributions
Self-employed professionals are required to pay Class 4 National Insurance. This was proposed to increase from 9% to 10% from April 2018.
Theresa May then announced that the tax rise will be delayed until the Autumn Statement.
The Chancellor later announced on March 15, 2017 that the decision to increase Class 4 NIC has been dropped. False alarm.
VAT threshold increase
The VAT threshold has been increased to £85,000 from £83,000 effective from April 2017.
If you are below the VAT threshold, you are not required to register for VAT. However, it may benefit you from registering as some businesses can be unwilling to do business with you if you can’t produce a proper VAT invoice.
Review of Employment Practices
There is an ongoing review on employment practices and how they can be adapted to suit the modern business economy. This includes assessing the employment rights for those undertaking non-standard forms of employment (or lack of). This covers contractors, freelancers and self-employed professionals.
IR35 Public Sector changes
Public sector contractors may be affected by the IR35 legislation reform, also known as Intermediaries Regulation, effective from 6 April 2017.
If you are working in the public sector, your IR35 status will be determined by the public-sector authority. If you are caught under IR35, you will be taxed at source like an employee would, but without the employment rights. This may also mean that you would be required to pay certain employee taxes, as part of IR35.
If you are a public-sector contractor, we advise you to take specialist IR35 advice before the new tax year.
What is IR35?
IR35 is a piece of legislation that prevents ‘disguised employment’. By determining IR35 status, you can distinguish between an off-payroll worker, to a fixed-term employee. Gorilla Accounting offer a free simplified guide to IR35 public sector changes in 2017.
Making Tax Digital
The MTD scheme will require businesses to record their taxes online, on a quarterly basis, replacing the annual tax return.
This has been delayed until April 2019 for businesses below the £83,000 VAT registration threshold.
We recommend taking professional advice from your accountant to find out if you may be affected by any of the legislation changes. It’s important to be fully prepared for the new tax year which will commence in April. At Gorilla Accounting, we welcome all working mums to take advantage of our services as we’re happy to help.
Henna Sheth is a copywriter for Gorilla Accounting- Specialist Contractor Accountants
Find more Flexible Working Advice here.
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