Chancellor Targets Contractors

Posted 2015 by admin

Upon examining the Summer Budget one could believe that Contractors are not the Chancellor’s favourite people at the moment.

Firstly, he has announced that a review of IR35 is to be set up. It is well recognised that, despite various tinkering with the system over the years, including the failed Business Entity Tests, the IR35 legislation is still not working in the way that the Government had planned. I cannot predict the outcome but I find it hard to be believe that the recommendations of any review will be in Contractors favour.

A further consultation set to close on 30 September 2015 is currently considering the withdrawal of tax relief for home to work travel, including subsistence expenditure, were the work is performed through an intermediary and the worker is under the direct supervision, direction and control of another. That could be a real hit for some Contractors who need to travel to clients’ sites

In the Budget is was announced that whilst the NIC Employment Allowance is being increased to £3,000 per annum for most businesses, it will be withdrawn where the director is the only employee. That would be the typical situation for most Contractors.

Finally, most Contractors typically remunerate themselves through a mixture of low salary and high dividends. Since dividends are not subject to National Insurance they are generally much more tax efficient than salary. However, the Chancellor has announced that dividends will be taxed more heavily with effect from April 2016. The first £5,000 of dividends will be tax free but thereafter will be taxed at 7.5%, 32.5% and 38.1% for basic rate, higher rate and additional rate taxpayers respectively.

None of this is good news for Contractors. If you are unsure of your situation and how the rules will affect you, please do get in contact.

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