The Bank of England Base Rate has today been held at 0.5% again, following this month’s meeting of the Monetary Policy Committee.
At the same time as this month’s meeting, Chancellor George Osborne was delivering a particularly forceful budget for the nation’s contractors.
The biggest change for Contractors operating through a limited company is the scrapping of dividend tax credits, alongside the introduction of a tax-free threshold for dividends of £5,000 per year, meaning many will end up paying far more tax.
“This years’ summer budget represents quite a change for Contractors, with the vast majority likely to end up out of pocket” says Taj Kang, Business Development Director at Contractor Mortgages Made Easy.
“With the chancellor again proposing that IR35 will be reassessed, there is no margin of error for contractors. We speak with many who complete their own tax returns and, whilst this number has been reducing of late, this week’s budget will surely put the final nail in the coffin of those wishing to save on accountancy costs.”
Rates of dividend tax will be set at 7.5%, 32.5% and 38.1%, which represents an increase in tax of at least 7.5% for anyone paying themselves more than £5,000 a year in dividends.
In another move aimed at Limited Company directors, Osborne has now stopped many from claiming National Insurance contribution employment allowances.
Presently, an allowance of £2,000 can be offset against employers’ salary payments, however following yesterday’s summer budget announcement, this will no longer be possible.
“Although we were promised a budget aimed at ‘workers’, this would not appear to be the case for Contractors” adds Taj. “In addition to the aforementioned likely tax increases, the government has also announced that tax relief on travel and subsistence costs are to be restricted.”
George Osborne’s summer budget now suggests that, where a contractor is ‘under client supervision, direction and control’, tax relief on these costs will be unavailable.
There is, however, some good news for Limited Company contractors, as Taj concludes, with a reduction in corporation tax, down to 19% in 2017 and 18% in 2018.
“Some positivity comes in the government’s commitment to lower corporation tax, which will allow contractors to marginally offset the costs of running a limited company.”
“Like all things financial – particularly budget related – the devil will be in the detail. Some of this summer’s budget is vague at best, however when considering the increased HMRC budget to tackle tax avoidance, alongside tax break reductions for Buy-to-Let investors; it would appear that this is a particularly bad budget for contractors.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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