april 2016 tax changes - 5 things limited company contractors need to know

April 2016 tax changes - 5 things limited company contractors need to know

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The government over the last couple of months has not announced anything fatal that was not anticipated by the industry experts, however, contractors are still sitting on the hotplate and warned not to get too complacent. The rules applying from April 2016 still have a wide impact. 

Here is a list of definite changes that will take effect from April 2016:

Travel and subsistence expenses
 
The new rule that comes into effect from April 2016 says, if your contract is caught under IR35 you will not be able to claim tax and National Insurance Contribution (NICs) relief on travel and subsistence expenses for ordinary commute from home-to-work. Contractors providing services through their own PSC will have to fall outside IR35 to claim relief on travel and subsistence expenses. 

Additional tax on divided 

Effective from April 2016, the current system of 10% tax credits will be abolished and every contractor who earns dividend income will receive £5,000 of dividend allowance which will not have any tax liability. Dividend income in excess of £5,000 will be taxed at the new dividend tax bands which are:

  • Basic rate – 7.5%
  • Higher rate – 32.5%
  • Additional rate – 38.1%

Restriction on Employment allowance 

As an employer you could get up to £2,000 a year off your National Insurance bill. However you cannot claim if:

  • You are a public body or business doing more than half your work in the public sector unless you’re a charity.
  • You are a service company with only deemed payments of employment income under IR35 rules

One-person company 

From April 2016, limited companies whose sole employee is the director will not be able to claim the National Insurance Employment Allowance.

Distribution

At present any distribution received during the winding-up of a company is charged to Capital Gains Tax (CGT) with the rate of tax as low as 10% and a maximum of 28%.  Under the new proposal which comes into effect from 5 April 2016, distributions will be chargeable to Income Tax at rates ranging up to 38.1%.

If you still haven’t started planning you need to put your gears on and take precautions over the next seven weeks so you can maximise on your earnings. 

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