Changes to Taxation of Contractors Freephone | |

What Changes are there for Contractors? HMRC have recently announced changes in the taxation of contractors which has caused concern. It is helpful to look at these options, and assess how much this will affect you. There are three main areas: Travel and Subsistence Expenses Claims Dividends Final Distribution (Entrepreneurs Relief) Freephone | |

Travel and Subsistence Expenses Claims Who is likely to be affected? Workers employed through an employment intermediary, such as; Umbrella company Limited Company Recruitment Agency However the restrictions will apply only to workers supplying personal services under the supervision, direction or control of any person i.e. for example those working inside IR35. If, therefore, you are working outside of IR35 then this will not have any effect on you, you will still only be subject to the restrictions imposed by the 24-month rule. How would this affect me? If you are working inside IR35, then you will no longer be able to claim: Home-to-work travel expenses Related subsistence What do I need to do? Ensure that your contract shows control over the way that you perform and deliver your work and that you’re not managed by your end client. HMRC will examine both the contract and your working practices. Freephone | |

Dividends From April 2016, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance. The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what dividend income you have. Dividends are not subject to any National Insurance We would say it is a simpler system. If you do have higher dividend income, you will be paying a little more tax than you do at the moment, however you would still pay less tax then you would as a permanent PAYE employee. If working on a salary/dividends split, on a gross income of £60,000 you would only see a marginal decrease in your take home pay of about £1,092. This is still about £7,300 more than you would be able to take home as a PAYE employee. Freephone | |

Assume you want gross income of £60, PAYE £££ Tax free personal allowance Basic rate taxable income Higher rate taxable income SJD recommended salary Net Tax free dividends * Gross Taxable dividends (Basic rate) Net Taxable dividends (higher rate) * PAYE tax on salary NI due on salary Tax due on dividends Take Home (Gross salary, net dividends, less tax) % of income take home % of income paid as tax *Gross dividends = £49367 Freephone | |

Entrepreneurs Relief There is currently a consultation on the taxation of Dividends, which finishes on 3 rd February Proposals are that legislation will be introduced in Finance Bill 2016 to amend the Income Tax (Taxation of Other Income) Act 2005; the effect of this will be to change the entitlement to Entrepreneurs Relief if a personal service company is closed with the intention of extracting the funds using a beneficial tax rate. This is being referred to as a Targeted Anti-Avoidance Rule; the guidance is that if, within two years of closing your Limited Company and the funds being distributed, the individual who was a shareholder in that company continues to be involved in a similar trade or activity, entrepreneur’s relief will be withdrawn. We do not believe this would necessarily be limited to working through another personal service company, but may also mean working as a sole trader. You should be aware that if entrepreneur’s relief is withdrawn, indications are that the distribution of funds would be treated then as income, not a capital gain. How would this affect you? SJD Accountancy has always discouraged our clients to close companies simply to get a better tax rate on funds if the intention is to open a similar personal service company at the point of closure – a Phoenix company. Our advice, therefore, is unchanged – if you intend to start contracting again within a short period of time, you should not close the company but explore with us other options. If however, you are closing the company for a good reason – perhaps you have been offered a permanent role or are leaving the country – then your entitlement to entrepreneur’s relief is unchanged. When will this take effect? The Chancellor indicated this would be included in the legislation effective 6th April 2016 and will affect distributions made from this point. Freephone | |