Overall it was another bad budget for freelancers, even given the pull back on NI contributions. In the world of web design and Ecommerce, freelancers make an enormous contribution to the economy. Very often they are the ones who start businesses and employ people. It seems they have been targeted in successive budgets, at a time when corporation taxes have been slashed.
Perhaps the biggest shakeup was in making tax digital. The decision to give businesses below the VAT threshold an extra year to prepare has made things a little clearer. But businesses making more than £10,000 and below the VAT threshold will have to make all their taxation digital by 2019. Businesses above the threshold will have to do it by next year.
The move means that any business that meets the criteria will have to report their business finances quarterly to HMRC via digital software.
It was already known that Class 2 National Insurance contributions were being abolished in 2018. But the Chancellor shocked many by announcing that NI for Class 4 would go up from 9% to 10% with a further 1% rise next year. The increase would hit all sole traders working in the e-commerce or web industries earning over £16,250.
Fortunately, the Chancellor was forced into an embarrassing climb-down after public outcry that the Conservatives were reneging on an election pledge.
If you’re a limited company and benefit from dividends, you can get up to £5,000 tax-free as it stands. But as of April 2018, this will drop to £2,000. Limited company shareholders who take an income in the form of dividends will be hit with more tax.
It was also announced that the threshold for VAT would increase from £83,000 to £85,000. The threshold for deregistering will drop from £83,000 to £81,000.
The Budget report also declared that freelancers would be able to prepare their accounts on the cash basis. This means that they can work out their profit based on when money is coming in and going out rather than when income earned or costs incurred. So you only count money when paid rather than when invoiced.
The internet has opened up a world of possibilities for new businesses and entrepreneurs. Anyone with a laptop or internet connection can now set up a shop or company and generate income. So let’s hope the next budget doesn’t once again target them as a source of revenue.