Changes outlined in the Budget that affect contractors

Thursday 9 July 2015

The chancellor George Osborne announced his Summer Budget yesterday (July 8th), unveiling a number of changes that will affect contractors. The first thing to note is that the existing dividend tax credit system will be replaced with a new tax-free allowance of £5,000.

Reassurances from the Treasury stated that "ordinary investors with smaller portfolios and modest dividend income" will see no change in their tax liability, but rates are being increased. Dividend income exceeding £5,000 will now be set at 7.5 per cent, 32.5 per cent and 38.1 per cent, the Budget report said.

Solo contractors who own limited companies will no longer be able to claim NICs Employment Allowance under the new measures. The current system allows contractors running a personal service company to offset the allowance, which is usually set at £2,000, against the NIC on a salary, reports Contractor UK.

A consultation document about the plans to ban tax relief on travel and subsistence expenses for supervised, directed and controlled contractors has also been released. This is in relation to plans that were unveiled in the March Budget plan.

Another area that is likely to be addressed by this Budget is IR35, which many people within the industry have said is not working well. Several parties have tried to tackle it in the past, but none have succeeded an only time will tell whether this time it will be different.

The Treasury's Budget report states: "The government will engage with stakeholders this year on how to improve the effectiveness of existing intermediaries legislation (IR35) which is designed to protect against disguised employment. A discussion document will be published after Summer Budget 2015."

"As highlighted by reports from the Office of Tax Simplification and the House of Lords, it is clear that IR35 is not effective enough…the government has asked HMRC to start a dialogue with business on how to improve the effectiveness of existing IR35 legislation."

It went on to say that the government intends to find a solution that works for the Exchequer while being fairer as a system on the whole. This final point will add to the changes that contractors will need to understand as a result of this Budget. Personal service corporations and umbrella users will see the effect of the majority of these changes in April next year.

By Victoria McDonnell

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