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2016 Finance Bill tax implications for UK contractors

by Sable International | Apr 07, 2016
  • The Finance Bill will have a profound impact on the way UK contractors, limited company directors and shareholders structure their tax affairs. The Bill came into force on 6 April 2016, read on for a summary of what this means for your tax liabilities.
    finance-bill-contractors

    Restrictions on travel and subsistence charges for contractors

    Contractors who fall within IR35, or are under HMRC’s definition of “supervision, direction, or control”, will have their travel and subsistence allowances restricted. Around 430,000 contractors will be affected by these restrictions.

    Important changes for contractors and limited company director-shareholders

    Personal tax allowance to increase to £11,000.

    The Personal Allowance is currently set at £11,000 (previously £10,600), but this is reduced by £1 for every £2 you earn over £100,000. These rates do not apply to income from dividends.

    The £3,000 annual Employment Allowance has been restricted.

    From April 2016 companies with a single director who is also the sole employee will not be able to claim the £3,000 Employment Allowance provided by National Insurance contributions.

    Changes to the dividend tax credit

    This will mostly affect directors and shareholders of limited companies. The 10% basic rate tax credit is replaced by a £5,000 tax-free allowance. Any dividends above £5,000 will be subject to 7.5% dividend tax up to the basic rate band. Larger dividends and additional rates will be taxed at 32.5% and 38.1%, respectively.

    Value Added Tax

    The following changes will be applied to VAT registration thresholds:

    • 20% – the standard rate of VAT, applied to all invoices if you are VAT registered.
    • £83,000 – registration threshold (from 1 April 2016).
    • £81,000 – de-registration threshold (from 1 April 2016).
    • £150,000 – turnover threshold limit to be a part of the Flat Rate VAT Scheme.

    Tax tables

    These tables will help you understand how the Finance Bill will affect your Income Tax, Dividend Tax, Capital Gains Tax and pension contributions for the 2016 -2017 tax year.

    Dividend Tax

     

    Tax band 2015-16 rate 2016-17 rate
    Basic rate 0% 7.5% (first £5,000 tax-free)
    Higher rate 25% 32.5%
    Additional rate 30.6% 38.1%

    Income Tax

     

    Tax band 2015/16 income 2016/17 income Rate
    Basic £0 – £31,785 £0 – £32,000 20%
    Higher £31,786 – £150,000 £32,001 – £150,000 40%
    Additional £150,000 + £150,000 + 45%

    Capital Gains Tax

     

    Tax Band 2015/16 Rate 2016/17 Rate*
    Basic 18% 10%
    Higher 28% 20%
    Annual Exempt Amount £11,100 £11,100

     *Residential property is still subject to the previous tax rates.

    Pensions

     

    Category 2015/16 rate 2016/17 rate
    Lifetime allowance £1.25 million £1 million
    Annual allowance £40,000 £40,000
    Tapered annual allowance N/A £150,000 (incl. pension contributions)

     


    For help in structuring your limited company or personal finances in the most tax-efficient way, give us a call on +44 (0) 20 7759 7553 or send an email to accounting@sableinternational.com.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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