Personal Service Companies Crackdown by Government
Chancellor Osborne, in his Budget today, has launched a fierce Personal Service Companies Crackdown.
He is determined to stop contractors who use limited companies as personal service companies from claiming travel and subsistence expenses against tax.
This personal service companies crackdown is where there is an intermediate between a contractor and a client, e.g. an umbrella company or an agency.
This will, therefore, make it more expensive for UK Contractors to contract.
IR35 Tax Changes
Also, the Chancellor wants to look again at IR35 tax. He is not happy that it is working properly.
When he says that he wants to look at IR35 again we can assume that he wants to strengthen IR35 as he promised in a previous Autumn Statement.
So, he has already hired a 36-strong IR35 compliance team to do this.
Limited Company Dividends
Another area where the Chancellor has hit UK contractors is in the area of dividends.
He has, effectively, raised the tax rates on dividends. This will be a disincentive for contractors to operate through limited companies.
They have, traditionally, paid dividends rather than pay salaries as the tax was lower.
Dividends were not subject to National Insurance as salaries are.
Now that differential has been taken away with his personal service companies crackdown.
He has hit umbrella companies, as well, He has taken away the meagre tax relief on travel and subsistence that they got. Therefore, it is now, financially, hardly worthwhile using an umbrella company now.