The Budget 2016: What all contractors need to know
Chancellor of the Exchequer George Osborne spoke at the House of Commons on Wednesday 16 March 2016 to deliver the Budget 2016. The objectives seem to support small businesses and entrepreneurship due to the simplified admin and tax cuts being implemented. It is clear that the proposals set out by the Budget 2016 look to be clamping down on the taxation rules that affect IT contractors.
The Budget 2016 seeks to target all public sector PSCs and the companies they supply including the BBC and NHS. It has also confirmed the changes to the rules on Travel and Subsistence (T&S) expenses will go ahead as planned.
Having analysed the Budget 2016 in detail, we have some information for you to consider with regard to the new legislations:
Travel & Subsistence Legislation
Contractors who are operating through an employment intermediary where IR35 applies (such as an umbrella company), will no longer be eligible for tax relief when reimbursed. Although this is likely to significantly affect umbrella companies, non-IR35 limited company contractors are unlikely to be affected.
There will be a new Dividend Tax implemented as of April 2016. The new set of Dividend Tax rates means that all limited company taxpayers will be affected. The new rates will replace the 10% tax credit with a dividend allowance of £5,000 per year, but individuals will suffer higher rates of tax on dividends that don’t fall within this allowance.
National Insurance and EA removal
There will be a withdrawal of the NI Employment Allowance for single-person companies, with a view to netting the exchequer £70m in 2016-17, rising to £90m in 2020-21.
Off payroll working in the public sector
The government is making public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. Rules will remain unchanged for those working in the private sector.
For big and small companies, Corporation Tax will be cut to 17% by April 2020, but will remain at 20% in the meantime.
Disguised Remuneration (DR)
Measures to tackle DR schemes will be put in place to stop people avoiding Income Tax and NICs. There will be a new charge on loans paid through DR schemes which have not been taxed and are still outstanding by April 2019.
Personal Allowance Tax
The Personal Allowance Tax threshold is set to rise to £11,000 in April 2016, with plans for a further increase to £11,500 in April 2017. This change means the typical basic-rate taxpayer will pay £1,000 less in tax each year than they did in 2010/11.
Capital Gains Tax (CGT)
For the higher rate taxpayers the rate of CGT has been lowered from 28% to 20%, and for basic rate taxpayers it has reduced from 18% to 10%. However CGT on properties will be subject to an 8% surcharge, meaning that the rate in those cases will essentially be unchanged.
Entrepreneurs’ Relief (ER)
Budget 2016 restores ER (subject to conditions) for shares in companies which are members of a trading partnership or co-owners of a trading joint venture company.