Guidance on the impact of the Autumn Statement 2016 on small businesses and contractors.
Class 2 National Insurance
As announced at Budget 2016, Class 2 NICs will be abolished from April 2018 and self employed contributory benefit entitlement will be accessed through payment of Class 3 and Class 4 NICs.
All self employed women will continue to be able to access the standard rate of Maternity Allowance. Self employed people with profits below the small profits limit will be able to access contributory employment and support allowance through payment of Class 3 NICs. There will be provision to support self employed individuals with low profits during the transition.
This measure should for self employed individuals:
- Simplify the administrative arrangements for payment of NICs.
- Allow for entitlement to accrue social security benefits through payment of Class 4 NICs alone.
However, those with profits below the small profits limit will be required to pay Class 3 NICs in order to accrue contributory employment and support allowance benefit entitlement.
Alignment of National Insurance thresholds
The NI primary (employee) and secondary (employer) thresholds will be aligned from 6 April 2017 meaning that both employees and employers will start paying NI on weekly earnings above £157.
VAT Flat Rate Scheme
From 1 April 2017 a new 16.5% rate will be introduced for businesses with limited costs that operate within the VAT FRS.
The VAT FRS is a simplified accounting scheme for small businesses with taxable turnover less than £150,000 per annum. When in the scheme, businesses determine which flat rate to use by reference to their trade sector.
From 1 April 2017, businesses in the scheme will have to determine whether they meet the definition of a “limited cost trader”, being one whose VAT inclusive expenditure on goods is either:
- Less than 2% of their VAT inclusive turnover in a prescribed accounting period, or
- Greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year.
Goods for the purposes of this measure excludes capital expenditure, food and drink for employees, vehicles, vehicle parts and fuel.
This measure should to an extent counter the perceived abuse of the VAT FRS although many businesses will suffer an increased VAT rate.
Off payroll appointments in the public sector
From 6 April 2017, when a public sector organisation engages an individual, they will have to apply employment status tests to check whether the individual should be treated as an employee for tax and NI purposes, even where the individual works through their own personal service company (PSC) or similar intermediary. In these situations, the public sector body will be required to operate PAYE and account for NI in relation to payments made to the PSC. This is a partial reform of the IR35 intermediaries legislation by which the onus of testing the nature of the relationship will no longer rest with the PSC but shift to the end public sector client.
Where the public sector body sources an individual through an agency, it will be the agency’s responsibility to test the relationship and apply PAYE and NI where necessary.
PSCs who are subject to the new rules will no longer be able to claim the blanket 5% allowance for expenses available to other PSCs.
For these purposes, public sector bodies includes government departments, executive agencies and non departmental public bodies, the NHS, the police and fire authorities, local authorities, devolved administrations, educational establishments including universities and the BBC.
There was no indication that the rules will be extended to the private sector.