The Chancellor’s Summer Budget was hotly anticipated, with many people hoping that they would come out on top once his plans were revealed. However, the reception that yesterday’s announcement has received has been mixed, with many independent professionals concerned that this is a sign that the Conservative government are not quite as supportive to those working for themselves as they had first appeared.
On the surface, there was plenty of good news: there is a plan to reduce Corporation Tax to 19 per cent in 2017 and then 18 per cent by 2020, which is coupled with a planned increase in the personal allowance to £11,000 meaning that lower earners will pay less tax. The change in the threshold for higher rate tax, due to increase to £43,000 in April 2016 and the freeze on fuel duty are also welcome for most tax payers, not just those who work for themselves.
However, these small victories have been overshadowed by the changes specifically aimed at those who work for themselves. One of the most costly will be the changes made to dividend tax, which will see the existing dividend credit being scrapped and new rates being introduced. These will be 7.5 per cent for basic rate taxpayers, 32.5 per cent for those who pay tax at the higher rate and 38.1 per cent for additional rate taxpayers. There will be a new £5,000 Dividend Allowance, which will be tax-free and is intended to replace the existing dividend tax credit. The effect of all this is that basic rate taxpayers can expect additional tax bills of £2025 per year as of April 2016, whereas higher rate taxpayers will effectively be paying tax at a rate of 46 per cent.
The Chancellor also announced a consultation on the way umbrella company contractors claim expenses, suggesting that tax relief on expenses claimed by those who work through personal service companies is likely to be restricted. There is also a planned review of IR35, which contractors were hoping would be an attempt to make it more user-friendly, but the fact that the Treasury is expecting to raise an additional £400 million from the planned enhancements suggests that it may actually be more restrictive than the current legislation rather than less.
Changes to Inheritance Tax, Tax Credits and tax relief on buy-to-let mortgages will also have a significant impact on a number of contractors, but the full effects of these are likely to vary significantly depending on each individual’s personal circumstances.
If you are concerned about how the Budget could affect your finances, then speaking to a contractor accountant can help you to ensure that you are making the most of your income and ensure that you are complying with all the latest legislation. For more information on how our tailored packages could make your life easier, call us today on 01253 362062 or email us at firstname.lastname@example.org.