Budget Summary – What does it mean for contractors?
In light of the 2015 budget being announced yesterday, we take a look into what this means exactly for contractors and freelancers.
As originally feared, all in all, the budget brings bad news for the majority of contractors. We have picked out some of the points raised that will be of interest to contractors.
- Personal Allowance – the current allowance of £10,600 will be increased to £11,000 in the 2016/17 tax year. Meaning you can earn £11,000 before paying any personal tax.
- Longevity and Jobs boost – it was announced that the forecast for job’s growth will increase, with businesses more likely to hire employees and invest.
- Corporation Tax – the current 20% rate will be cut to 19% in 2017 and 18% in 2020.
- Basic Rate Band – the basic rate band (currently £42,385) will be increased to £43,000 in 2016/17 tax year.
- New dividend structure – the current dividend tax credits are to be replaced by a £5,000 tax free allowance for dividends. After which any additional dividends will be taxed at 7.5% up to the basic rate band, then 32.5% and 38.1% (for additional rate tax payers over £150,000 income).
- Employment Allowance – currently £2,000, the employment allowance is to be removed from companies which the sole employee is the director of the company. Further information will be required to clarify whether a spouse second employee will change this.
- IR35 reform – the government has asked for HMRC to start a dialogue with business on how to improve the effectiveness of existing IR35 legislation. They said they “want to find a solution that protects the Exchequer and improves fairness in the system”. We would advise getting a contract view before each new contract.
- Travel and Subsistence – from 6th April 2016 the government has proposed that tax relief be removed for home to work commuting for those employed through an umbrella company. Seems like now is the time to have a good rethink on how to operate (umbrella or limited company).
Want to find out more?
If you would like to know how the budget could impact you and your company, or how you can set up a limited company, then get in touch with one of our experts today.
0161 669 4221