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Contractors suffer Budget blow

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9th Jul 2015
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The Chancellor’s Budget clampdown on tax avoidance looks to punish contractors through extra measures being placed on IR35 and the changes to dividend tax, says Seb Maley of Qdos.

Most Budgets come and go without anything of note for the contracting community. This one was very different, with several issues which will shake up the industry.

Obviously IR35 is always the first talking point for contractors, and for years they have been calling for greater clarity and fairness in the legislation. Osborne stated that the government will consult on the ‘increasing abuse’ of disguised employment through PSCs. We’ll know more once the discussion document is released, but it would appear IR35 is about to be strengthened substantially. Whether or not this will dispel the uncertainty around the legislation remains to be seen, but HMRC’s recent focus has been on ‘supervision, direction and control’ and this may well take the front seat in any new proposals.

The big shock to contractors was the proposed changes to dividend tax, which will affect virtually everyone working through a PSC. From April next year all contractors drawing dividends from the company will pay more tax. The blow will be softened slightly by the reduction in corporation tax from 20% to 18%, but obviously that won’t come into play until 2017.

The proposed travel and subsistence rules could also affect contractors operating under the control of their end client and more clarity is required on exactly how that will be tested.

Ultimately it feels like a bit of a kick in the teeth for limited company contractors, who seem to have been wholeheartedly tarred with the ‘avoidance’ brush.

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By Psyche
10th Jul 2015 11:18

Employer's NI

Don't forget that single-director limited companies can no longer claim Employer's Allowance on the first £2,000 of Employer's NI, either.

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Sarah Douglas - HouseTree Business Ltd
By sarah douglas
11th Jul 2015 11:42

All it means

Is that these guys will now be doing is paying the full share of taxes like everyone other worker in the UK,  self employed do not get £3000 off their tax to employ themselves so why should sole directors.  I do not get the sympathy.  I am a strong believer in capitalism but it needs to be fair and everyone needs to take care of the UK.

However the rich will get richer I am sure.

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Replying to Hugo Fair:
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By pete_t
21st Jul 2015 11:43

Contractors suffer Budget Blow

What world do you live in?

There are thousands of "employees" in the construction industry who have been forced - initially to take on self employed status and subsequently limited company status. The purpose, quite simply, so that the "Employer" can avoid giving the employees rights to holiday pay, statutory notice, sickness benefit, their benefit of their "employers" NIC contributions, redundancy entitlement. In addition the Company's 'Managing Director' can turn up for work on any day and sent home again - without notice - and needless to say without because he (his company) is effectively on a is on a 'zero hours' contract (or no contract at all).

The individual I have in mind - providing he puts in 40 hours per week his Company can earn the princely total of £18,000 per annum (gross) - now the Company" will lose the annual Employment allowance. Now he needs an accountant to prepare accounts and submit them to HMRC and Companies House and get severely kicked on penalties if he is late - this used to be dealt with on and end of year submission - by his "Employer". There are 7 such limited companies working for this cowboy "main contractor" - all part of the 1,107,620 new "companies" formed in 2013 and 2014 - all part of "Cameron's record period of growth".

I understand the point to high flyers who are earning 6 figures - but these guys working for a wage which is about 80p per hour above the living wage (which in itself is a joke).

I think if you were in their position - and your feet ran a little closer to the ground - who knows - you might just "get" the sympathy.

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Sarah Douglas - HouseTree Business Ltd
By sarah douglas
21st Jul 2015 15:18

No difference

That is no different to how self employed work they are not guaranteed work either ,they pay an accountant to do a return and plenty of them come out with less £18000 and work just as hard if not harder . They also do not leave suppliers unpaid and hide behind ltd status and restart new companies . So no I have no sympathy  and my feet run very close to the ground.

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