close menu

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.

    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.



    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

    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.

    • female-entrepreneur hot air balloon
      Why we need more women-owned businesses
      Jul 16, 2019  |  by Scott Brown
    • crowdfunding lightbulb
      7 ways to finance your small business
      Jul 16, 2019  |  by Scott Brown
    • Businessman looking to the future
      How to get your business ready for the future
      Jun 19, 2019  |  by Scott Brown
    • Guide to UK PAYE tax forms
      A guide to UK PAYE tax forms P45, P60 and P11D
      Jun 14, 2019  |  by Kobus Van den Bergh
    • Cut-taxes
      The 2019/20 tax year changes: What they mean for you
      Jun 10, 2019  |  by Scott Brown
    • confused
      Do you need to complete a Self Assessment tax return?
      May 29, 2019  |  by Kobus Van den Bergh
    • Tax refund money
      11 excellent ways to spend your UK tax refund
      Apr 09, 2019  |  by Kobus Van den Bergh
    • London-business
      The UK still the best country for business in 2019
      Apr 04, 2019  |  by Scott Brown
    • Contractor choosing door
      Contractor insurance: Choosing the right cover for your risks
      Mar 12, 2019  |  by Kobus Van den Bergh
    • Making Tax Digital for VAT
      Making Tax Digital for VAT deadline: What you need to know before April 2019
      Feb 18, 2019  |  by Scott Brown

    South Africa

    Cape Town

    Regent Square
    Doncaster Road
    Kenilworth 7708 +27 (0) 21 657 2120


    25 Richefond Circle
    Umhlanga 4320 +27 (0) 31 536 8843

    United Kingdom


    One Croydon
    12-16 Addiscombe Road
    Croydon CR0 0XT +44 (0) 20 7759 7514



    9 Yarra Street
    South Yarra
    VIC 3141 +613 (0) 8651 4500

    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services Licence issued by ASIC to deal in foreign exchange (1st Contact Group - AFS Licence number 335 126).

    We use cookies to provide the best website experience for you. Using this website means that you agree to this. How we use cookies.