March 17th, 2016
The Bank of England’s Monetary Policy Committee (MPC) has today held its Base Rate of interest at 0.5%, marking seven years at this level.
The MPC have retained the current historic low for Base Rate following an intriguing Budget announcement by Chancellor George Osborne yesterday.
In it, Osborne unveiled a wealth of positive changes for the nation’s savers, including a sizeable increase in ISA savings limits to £20,000 from April 2017, alongside a new ‘Lifetime ISA’ aimed at those savers under 40.
From 6th April 2017, the government will introduce the new option for ‘younger’ savers, with a maximum contribution of £4,000 per person, per year, topped up by a further 25% contribution per year from the government at the end of the tax year, up to age 50.
That means that a 35-year-old starting a new Lifetime ISA and contributing the maximum £4,000 per year could receive an additional £15,000 from the government, by their 50th birthday, a real alternative to hefty pension contributions, particularly for those self-employed.
For Contractors, the Budget is usually an exercise in damage limitation, however yesterday came and went without significant change.
On the positive side, Corporation Tax will be reduced to 17% by 2020, income tax allowances have been increased for 2017/18, with the personal allowance moving to £11,500, and 40% tax threshold rising to £45,000 next tax year.
There was a nod to the exclusion of Personal Service Companies within the public sector, however as always the devil is in the detail, and yesterday passed without major drama.
Official government documents available online state that “From April 2017, where the public sector engages an off-payroll worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether the rules should apply, and for paying the right tax.”
In essence, that means it becomes the agency’s (or limited company’s) responsibility to establish IR35 status for contracts within the public sector, and ensure sufficient tax is paid. Providing contracts fall outside IR35, that means no change in real terms.
This will, of course, depend on how the government plan to test contracts for IR35 regulation, however in reality, public sector contractors will likely demand a rate increase if there is sufficient concern.
Capital Gains tax was also reduced, to 10% for basic rate taxpayers and 20% for higher rate payers, from 18% and 28% from 6th April this year, with Entrepreneurs Relief extended to those investors who invest in unlisted trading companies. The government will also review the definition of a trading company for ER purposes to ensure that it operates effectively, opening the door for potential changes in due course.
Article By: Bradley George, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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