With George Osborne ready to announce his latest Budget tomorrow, there are several changes that are set to affect contractors operating through their own limited companies.

Travel and subsistence costs when a contract is caught by IR35 (contracting under the supervision, direction or control of your client) will no longer be allowable to claim through the limited company. However, these changes are unlikely to apply to those contractors who are not caught by IR35. The Chancellor is expected to return to the issue of IR35 in the near future, and there could be an announcement regarding an improved ‘Employment Indicator Tool’ in Wednesday’s Budget.

Budget 2016 Announcement | Contractors and Freelancers | Gorilla Accounting

The new dividend tax rates are set to replace the current tax credit system from 6th April onwards. The first £5,000 of dividends received in the tax year will be tax-free, with 7.5% tax payable on the remaining dividends received in the basic rate band. Dividends declared above the higher rate threshold will be taxed at 32.5%, a 7.5% increase on the current effective rate of tax. These impending changes make it important to utilise the lower dividend tax rates currently in place.

There are also changes to the Employment Allowance, which in its current format repays up to £3,000 in Employer’s National Insurance to businesses that are eligible. From the new tax year, this allowance will no longer be able to be utilised if you are outside of IR35 and both the sole director and employee of your limited company.

Other changes include the proposed increase of the personal allowance to £11,000, as well as the possibility of the additional income tax rate to be decreased from the current 45p to 40p. The proposed changes to pension tax relief have been put on hold for now due to current economic and political climate. There could also be a mention of the Accelerated Payment demands that have been sent to contractors that have used offshore tax avoidance schemes in the past, as part of HMRC’s continued focus on tax avoidance.

If you are a contractor or freelancer and have any questions in regards to how the Budget may affect you please do not hesitate to contact us on 0330 024 0406.

If you are thinking of changing your accountant in line with the new tax year please get in touch and one of specialist contractor accountants will be more than happy to advise you on our service offering and answer any queries you may have.

We’ll be live tweeting the Budget tomorrow – head over to @GorillaAccounts from 9am to follow our reaction to The Chancellor’s speech.