Emily Coltman FCA, chief accountant to FreeAgent, explains the upcoming changes to tax law that might affect people in the UK and their business in the new tax year.
1. The “limited cost trader” rate
If you are using the VAT flat rate scheme and buy very few goods in your business – specifically if you spend less than 2% of your sales, or under £250, on goods per quarter – you may find you have to use the new “limited cost trader” rate. This is set at 16.5%, rather than the rate applicable to your business’s trade, as from 1st April 2017.
2. VAT thresholds going up
If you’re not yet registered for VAT, from 1st April 2017 you won’t have to do so until your VATable sales go past £85,000 a year (or within the next 30 days). This is an increase from £83,000 the previous year.
If you’re already registered but want to de-register for VAT, which you may decide to do based on the changes to the flat rate scheme, then you’ll be able to do that if your VATable sales are below £83,000 a year from 1st April 2017 (before that date the threshold was £81,000).
3. All change for IR35
If you are a contractor or freelancer working in the public sector – for example, a locum doctor attached to a NHS hospital, or a peripatetic music teacher working in state schools – then you may be affected by new changes to IR35.
If any of your work could be within IR35 (in other words, if you are an employee in all but name), then from 6th April 2017 it’s up to your public sector clients – not to you – to determine whether or not IR35 applies to the work you’re doing for them. If it does, then they will have to deduct income tax and National Insurance from your invoices before paying the difference over to you.
4. Limited companies tax fall
From 1st April 2017, the rate of corporation tax (paid by limited companies, and certain other organisations such as some clubs and societies), will fall from 20% to 19%. This is the first of several planned annual decreases in the rate of corporation tax.
5. Trading and property allowances arrive
If you’re a sole trader, or an individual renting out properties, then from 6th April 2017 you’ll have available two potential new allowances of £1,000 to set against your income.
You can use these in one of two ways – either instead of adding up your actual costs to set against your income (you don’t get the allowance as well as your actual costs), or, if your income is under £1,000, you won’t have to put it on your tax return at all.
And if you live in Scotland, remember that from 6th April 2017 the Scottish government has set different tax bands from the rest of the UK, meaning that if you’re a higher-rate Scottish taxpayer, you’ll see your bills go up!