UK Contractors Blackest Day Ever
Yesterday was arguably UK Contractors blackest day ever. Only the day they set up IR35 in 1999 could rival it. IR35 did not affect the majority of UK Contractors, however, like yesterday did.
It was the blackest, blackest day for Umbrella Companies who can no longer claim tax relief for contractors on travel and subsistence.
Umbrella companies’ best ever day was the day IR35 came in. They sprung up after that, disguising contractors as permanent employees so that they could claim tax relief on travel and subsistence for them.
Yesterday was their worst ever day and the umbrella company industry will never be the same again.
However, the Chancellor also attacked those using limited companies. It was UK Contractors blackest day too. Read on for the impact of yesterday’s cruel budget on contractors which we got from an expert source.
SUMMER BUDGET 2015: UK CONTRACTORS BLACKEST DAY
The Chancellor of the UK delivered his Summer Budget yesterday. Within this there are a number of matters that will affect contractors. So, the main changes that will have an impact are:
· First of all, they announced a change to the taxation policy on dividends. Previously there was an advantage for those operating a Limited Company to take dividends rather than salary. This was available at a saving of up to 12.5% (on payments up to £150k).
However, the changes in the Summer Budget mean that they will remove the Dividend Tax Credit from April 2016 and they will introduce a new Dividend Tax Allowance of £5,000 a year. New rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
· Secondly, they aimed the other impact at those contractors that are the sole employee of their own company (PSCs). Previously an allowance was available for those PSCs paying employers Class 1 National Insurance on ordinary salary payments up to £2,000.
Umbrella Companies Worst Day
In his Budget, Mr Osborne has now removed access to this allowance for those operating PSCs.
· First of all, a key fact of Umbrella businesses is the ability to offset expenses on travel and subsistence. This enables contractors to reduce their taxable income. It is one of the most widely adopted methods of tax planning in the contractor market.
After first being discussed in the March 2015 Budget Plan, it was announced that this relief is to be removed with effect of April 2016.
· Secondly, IR35 has long been a key area for both contractors and HMRC. It has been the subject of a great deal of scrutiny. Again, the Government have chosen to review this. Although no specific guidance has been given, the likelihood is that this is an area of planning that will be open to a reduced cross-section of the contractor community.