Tax Changes for Contractors

Contractor Tax Changes

With all the political machinations currently taking place, it’s easy to forget that the new tax year begins today. As of midnight on 6th April a number of new policies took effect, including several that’ll have an impact on contractors and independent professionals. Although the most recent Budget still looms rather large in the proverbial rear-view mirror, these changes relate to the Budget that took place in July last year.

First and foremost, the tax rules surrounding dividends are now changing. The first £5,000 of dividend income earned by shareholders will be completely free of tax, with any amounts over that initial marker being taxed at 7.5% (for any income falling within the basic rate band). Beyond that, higher rate and additional rate earnings will also be subject to higher tax levels of 32.5% and 38.1% respectively. Although this will likely affect the take-home pay of many contractors, it could be by as little as 2% to 4% (see this article on ContractorUK for a more detailed breakdown).

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Kingsbridge Turns 15

Kingsbridge Birthday 1

“No wise man ever wished to be younger,” Jonathan Swift once wrote. That particularly sage piece of wisdom is now over 300 years old, but it retains just as much relevance today as it ever did. The older you get, the better you become. Although it’s an adage Swift intended for his fellow man, it works just as well for a company. Kingsbridge turned 15 at the end of March and we’ve aged well. We know our customers, and the contracting community, better than ever. The company has grown hugely since 2001, both in terms of staff and the contractors, freelancers, and independent professionals we look after.

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Budget 2016 Analysis: ‘A Budget That Backs Small Business’

Budget 2016

George Osborne’s latest Budget as Chancellor passed today as expected, with no real surprises. There was good news for the self-employed, but the spectre of a clampdown on the use of Personal Service Companies (PSCs) by public sector employees still looms like a heavy cloud.

As we’ve mentioned on these pages before, Osborne’s tightening of the vice on the so-called ‘Paxman tax’ comes predominantly as a result of public outcry at perceived tax evasion by celebrities and sports stars. However, such measures will also impact those contractors working in the public sector, meaning that from April 2017 they will now face investigation from their clients and agencies to confirm whether they are ‘true contractors’ or simply a ‘disguised employee’. If the client or agency believes that the contractor in question is a disguised employee, it will be required to deduct tax at source from all payments made.

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Budget 2016: What Contractors Would Like To See

Budget 2016

It’s almost that time of year again. If you’re a regular reader of the Kingsbridge blog you’ll know that we’ve been following the potential impact of political changes on the contractor community for a while now. Whilst the outlook had seemed quite bleak going into the winter of 2015, following on from a relatively unfavourable summer Budget, the wider picture has become a little rosier since then. An uneventful Autumn Statement was followed up by a Draft Finance Bill surprisingly void of any mention of IR35, which in turn was followed up by Julie Deane’s thorough and balanced Self-Employment Review, arguing for more support for contractors and the self-employed.

So what should contractors expect when the next Budget is delivered on 16th March? There are strong rumours that the Chancellor is planning another increase in Insurance Premium Tax (IPT), up to 12.5%. Given that IPT was raised from 6% to 9.5% in November 2015, if the speculation was true it’d mean that the tax would be doubled in less than six months – a remarkable increase by any standard. Should it go ahead, an increase in IPT could raise as much as £1.3bn for the Treasury in the first year alone.

Such rumour gives credence to the feeling among many that the insurance industry is being singled out, as Treasury minister Harriet Baldwin MP more or less admitted recently in a letter to the AA, stating: “IPT is not a tax on consumers but on insurance companies.” BIBA (The British Insurance Brokers’ Association) also noted that a rise in IPT would discourage customers from taking out policies.

Speculation abounds that the Chancellor will also seek to end the abuse of PSC’s in a crackdown on what many see as an income tax loophole. Pushed firmly into the spotlight by the media in recent months due to the likes of Fiona Bruce and Jeremy Paxman setting themselves up as “one-man companies”, the Chancellor believes that the rules that were designed to help contractors and freelance workers are now widely abused and “completely unfair”.

With an £18bn “black hole” to plug as a result of the significant economic downturn in recent months, Osborne seems set to renew his efforts to tackle tax avoidance. Traditionally PSC’s were used by professional contractors doing short-term work for a number of clients. By paying corporation tax at 20% and taking a modest wage, plus dividends from the company, they save on both income tax and NI.

But abuse of the tax rules is estimated to help around 20,000 public sector workers who should pay equivalent taxes to other workers avoid on average over £3,500 a year in income tax and National Insurance contributions.

In future, the public sector body employing the worker will be responsible for deciding whether income should be taxed in the normal way as employment income, rather than leaving it up to the individual worker. New guidance will also be published to make it clearer when employment taxes should be paid.

A government source, quoted in the Telegraph, said:

“Personal service companies can be legitimate, but we estimate that 90 per cent of people who should comply with the rules, don’t.

“Some may not understand the rules but it’s clear others are using them as a way to minimise their tax bills. You have situations where someone working in a public body pays thousands of pounds less in tax than someone doing exactly the same job alongside them who’s taxed as an employee.

“That can’t be fair – either on the taxpayer or their fellow workers. We are going to put a stop to it.”

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Compliance and the Modern Day Contractor

Contractor Compliance

We recently wrote the below blog post for our good friends at Jonathan Lee Recruitment. You can read more excellent material over on their blog. Read on below:

Contractors and the self-employed have been in the news more than usual over the last year. Whether it was the Autumn Statement, the Draft Finance Bill, or last month’s Self-Employment Review, it’s fair to say that the importance of contractors to the British economy is firmly on the agenda.

Figures released last year indicated that the number of individuals entering the contractor community has grown dramatically over the last 8 years. There are now close to 2 million independent professionals working in the UK – an increase of over 35% since 2008.

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Four Reasons To Become A Contractor

Reasons To Become A Contractor

More and more people working in what one might term ‘traditional’ employment are moving into the freelance and contracting sectors. As Julie Deane’s recent Self-Employment Review made clear, the number of people currently self-employed in the UK has reached unprecedented levels, not only making a crucial economic impact but also ensuring that the sustained growth of recent years continues on an upward trajectory. It’s true, in many ways, that there’s never been a better time to make the switch and plough your own furrow – leave the office, leave your routines, perhaps even leave your comfort zone. Contractors are well and truly making their own mark on the economic landscape. Read on below to see just a few of the reasons why you should consider following the self-employment path.

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Self-Employment Review: Contractors Need More Support

Self-Employment Review

After what could’ve been a challenging year for the contracting community passed without being, well, quite so challenging (evidence here and here), more positive news was received today in the 41-page shape of Julie Deane’s government commissioned independent report on self-employment. You can read Deane’s report in full here (and we encourage you to do so), but the takeaway was one many contractors, and the self-employed in general, would wholeheartedly agree with: more support is required.

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Contractor News Round-Up: 12th February 2016

Contractor News Round-Up

Below you’ll find our latest round-up of contractor relevant news stories that have surfaced over the past few weeks. We’re starting to see a lot of chatter around HMRC’s new IR35-specific ESI tool, rumoured to be coming into play in the spring. Read on for news on that, as well the other subjects that have caught the eye at Kingsbridge over the last week or two.

HMRC confirms ‘IR35-specific ESI tool’

“Speaking at the December IR35 Forum, HM Revenue & Customs said its aim was to have a beta version of an “IR35 specific ESI tool” by “spring 2016”.

HMRC’s Mark Frampton also told the forum that the hope is for the tool to provide “clearances” on status, much as the Contract Review Service is meant to now, to a “mass” of contractors.”

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The Self-Assessment Deadline – Tips For Contractors

Self-Assessment Deadline

The beginning of the year can be a stressful time for everyone, with new resolutions to keep to, the return to work after Christmas excess, and the cold days of winter. For contractors, there’s also the added burden of the self-assessment deadline looming large at the end of January (the 31st to be exact). We can’t ever promise to make doing your tax returns any more fun (although we find a glass or two of wine tends to help), but we can give you some tips to help the process go more smoothly for this year and the years beyond. We know your time is at a premium so we’ll get on with our guide without any further fuss:

Make sure you submit your tax return on time

It might sound like a given, but you’d be surprised at the number of horror stories we’ve heard about contractors leaving things too late and not making the deadline (which, to remind you again, is 11:59pm on 31st January). If your tax return arrives after this point you’ll pick up a £100 fine. So check those internet connections, make sure you know where all your paperwork is, and give yourself more time than you think you’ll need.

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Kingsbridge and Genie Accountancy Announce Partnership

Genie Accountancy

Kingsbridge Contractor Insurance are pleased to announce a new partnership with Genie Accountancy, one of the most well respected specialist contractor accountants in the UK.

Kingsbridge have many years of experience in the contracting industry, and we’ve used our expertise to put together a comprehensive, compliant, and competitive insurance solution specifically tailored to meet the needs of contractors, freelancers, and independent professionals. Our policy package offers all the key insurances limited company contractors require in one easy to manage product, including professional indemnity, public liability and employers’ liability, meaning only one policy is needed to cover a contractor’s main exposures.

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