budget 2016 - PSCs working in public sector targeted

Budget 2016 - PSCs working in public sector targeted

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Contractors working in the public sector have been targeted by George Osborne in his first Spring Budget of this Parliament, delivered on Wednesday, 16th March – making it tougher for personal service companies (PSC) to contract. 

Following a consultation, from April 2017 Personal Service Companies who contract in the public sector will face investigation by their clients to ensure their tax affairs are in order. 

Here is a summary detailing the main points in the Chancellor’s speech which relate directly to contractors.

Personal service companies contracting in the public sector
Section 2.4 of the Budget 2016 says: “"From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. The government will consult on a clearer and simpler set of tests and online tools. (Finance Bill 2017) (40)."

This clarifies that from April 2017 either the agency, or the NHS Trust if they have recruited the PSC directly, will be the ones responsible for operating the new rules, running the deemed payroll, collecting and paying the relevant tax and NICs.

Those contractors currently working for the public sector as a contractor may find that investigations start earlier than April 2017 after the Monitor/Trust Development Authority (TDA) issued a Policy Update to NHS Trusts which instructed that from 1 April 2016 they can only engage directly with a PSC where they are assured that the worker is complying with IR35 legislation and they have appropriate proof that they are complying with their obligations as set out in HMRC guidance.  If you have any doubts or uncertainties we recommend speaking to your agency or give the Bradleys Tax Helpline a call on  0203 507 0022.

Travel and subsistence expense
There was nothing in the Budget to say any different and therefore, from April 2016, temporary workers employed through an employment intermediary (such as an umbrella company) who are subject to supervision, direction or control and PSCs caught by IR35 will not be able to claim tax and NICs relief on travel and subsistence expenses for an ordinary commute from home-to-work.

Dividend tax
Section 2.41 “as announced at Summer Budget 2015, the government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividends Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. (Finance Bill 2016)”

Capital gain tax
From 6 April 2016, the higher rate of Capital Gain Tax (CGT) will be reduced to 20% from 28% and the basic rate to 10% from 18%. 

Corporation tax
The government will cut the rate of corporation tax to 17% by 2020. 

Employment allowance
Employment allowance will increase to £3,000 which is an increase of £1,000 from 2016. However, employment allowance will be withdrawn for single person companies. 

We’ve been assisting contractors to take measures and if you are seeking advice in a particular area, or have a question concerning any of the issues covered in this summary, please contact on contact@bradleyscontractors.co.uk or on  020 3507 0087.

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