A summary of the 2016 Budget for Contractors
George Osborne delivered his 2016 Budget yesterday, containing some important points for contractors.
There was confirmation that the dividend tax increases will be going ahead from 6th April 2016, as well as the personal allowance being increased to £11,000 and the higher rate threshold to £43,000. The Chancellor also announced the personal allowance is set to increase to £11,500 for 2017/18, with the higher rate threshold also increasing to £45,000.
The Budget has targeted personal service companies contracting in the public sector, with recruiters and public sector organisations being responsible for operating IR35 for contractors operating through their own limited companies from April 2017 onwards. However, the rules will remain unchanged for those working in the private sector. The government has also stated that it recognises that the current rules are seen as complex and can create uncertainty and it will therefore consult on a simpler set of tests and online tools that will provide a clear answer as to whether and when the rules should apply.
Capital Gains Tax is getting a reduction, with the higher rate of Capital Gains Tax being cut from 28% to 20% and the basic rate from 18% to 10%. Specific to contractors, as announced at the Spending Review and in the Autumn Statement 2015, the government is planning to amend the Transactions in Securities rules and introduce a Targeted Anti-Avoidance Rule in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage.
The government also announced plans to cut the rate of Corporation Tax from the current 20% to 17% by 2020. This is in addition to the 8% cut Corporation Tax has received since 2010. Outstanding company loans to owners at a company’s yearend will now be subject to a 32.5% Section 455 surcharge should the balance not be repaid within 9 months following the yearend. This 7.5% increase is in line with the increased higher rate dividend tax.
There was confirmation that the proposed travel and subsistence expense restrictions will go ahead for those contractors caught by IR35 (contracting under the supervision, direction or control of your client) as well as those working through Umbrella companies.
Other points in the budget include:
- The withdrawal of the National Insurance Employment allowance for single-person companies will go ahead from 6th April 2016.
- Pensions are to remain unchanged for the 2016/17 tax year, with the annual limit of £40,000 and lifetime allowance of £1.25 million set to stay. However, in addition to the current pensions system, a Lifetime ISA will be launched next year which will offer savers under the age of 40 an annual allowance of £4,000 which will be tax-free savings. The government will top up this savings pot with an extra £1 for every £4 deposited by the holder of the account.
- The total that a person can deposit into their Individual Savings Account (ISA) will increase from £15,240 to £20,000 next year.
- Class 2 National Insurance will be scrapped for the self-employed from 2018 onwards.
- Commercial Stamp Duty has been reformed, with a zero rate up to £150,000, 2% on the next £100,000 and 5% for costs above £250,000.
- Insurance premium tax has increased by 0.5% to 10%.
At Gorilla Accounting you will receive unlimited support from your own dedicated accountant as part of our all-inclusive package for contractors. This will include keeping you up to date with any changes, ensuring compliance with new rules as well as operating efficiently. Our fees are just £85 + VAT per month, just give us a call on 0330 024 0406 to find out more.