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).
The Federation of Small Business (FSB) recently noted that further simplification of the tax system is needed for smaller companies.
Speaking to Brookson, Martin McTague, policy chairman at the FSB, said: “While we understand the rationale for addressing the long recognised imbalance in the tax system due to the tax treatment of dividends, it comes at a challenging time for our members.”
He cited recent changes to the pension scheme and tax returns, as well as the introduction of the National Living Wage, which came into effect on April 1st, across the UK. The recent change to minimum wage means that some small businesses will be obliged to pay any employees over the age of 25 at least £7.20 per hour.
“FSB has consistently pushed for simplification of the tax system for small businesses. To support this work, we commissioned EY in 2015 to deliver a series of ambitious options for policymakers,” Mr McTague explained.
He said that members often see tax administration as a major burden on their businesses, and called the recent changes “concerning” as they have not been made in a “holistic” way.
Despite the tax changes, with greater flexibility, limited liability, and myriad other intangible advantages we echo the sentiments of many in the contracting community when we say that the benefits of working for yourself are greater than ever. With employee job security and benefits (final salary pensions, for example) having been eroded over the years, contracting is in many ways a more attractive proposition than it ever has been.
It remains to be seen what kind of impact these changes will have on the contracting community, but we’ll be keeping a close eye on any movement in the future. What are your thoughts? Let us know in the comments below, or over on our LinkedIn, Twitter, and Facebook pages. If you’re a contractor and you need insurance, or simply have a question you need answering, you’re more than welcome to get in touch with one of customer services team on 01242 808740.