Brexit: tax implications for contractors

Tax implications for contractors

Seven weeks after the EU Referendum vote and there has been little clarity on what will happen, when and by whom! In fact, until Article 50 is triggered, sparking the start of exit negotiations, we’re likely to remain in a haze of uncertainty at least until the Autumn. Our own political parties need to get their houses back in order before they can start divorce proceedings.

 

But a lot of people, understandably, are not keen on playing the waiting game and want at least some idea of what the future holds, now. Here we take a look at what Brexit is likely to mean for contractors and their taxes in the short-, medium- and longer-term. Before we get started, it’s important to stress that even once Article 50 is triggered it’ll be at least another two years until changes come into effect, following what will undoubtedly be complicated negotiations between UK and EU officials. Until that time, existing arrangements will remain in play.

 

In the short-term

Many in the accounting world expected progress to kick start on the Making Tax Digital consultations following a remain outcome. It now seems likely this will slip far down the priority list, unlikely to reemerge at least until a new Cabinet is in place. Any delay in progressing this already unpopular proposal will be music to many contractors’ ears.

 

With the Finance bill 2016 already behind schedule, further delays seem inevitable meaning a delay in the Finance Act due to be passed in October, while the Government sorts itself out.

 

There are already 40 pieces of tax legislation which have been already delayed during the Referendum so these will now be reactivated with a view to most coming into force later this year and early next.

 

One thing we can be pretty certain on, is that an emergency Budget will be held before the year is out.

 

In the medium-term

If the emergency Budget follows the blueprint which Osborne forecast when he was Chancellor during the Referendum campaign, then we can expect £15bn of tax rises and £15bn of spending cuts. If this does happen, we’re likely to see rises in income tax and National Insurance, with the campaign forecast suggesting a 2 pence rise in the basic rate of income tax; a 3 pence rise in the higher rate and a 5% inheritance tax rate to 45p.

 

As an incentive to companies to stay in the UK, it is expected that the rate of corporation tax will probably not increase.

 

There are two key guiding principles relating to the application of taxes within the UK:

1. Direct taxes are imposed by UK law but in accordance with EU law.

2. VAT is imposed and operated in accordance with EU law.

 

So for the next two years nothing can change relating to VAT without complying with the existing EU arrangements.

 

In the long-term

During the transition period (which is likely to continue to late 2018), VAT – like all the other tax and regulation tied to European law – won’t change. Despite the Leave campaign’s promise to cut VAT rates on domestic fuel, this is unlikely to happen in reality as it generates £115bn a year for the UK government. We may even see VAT rates increasing as it is easy to implement the change and is a more straightforward way to boost the government’s coffers.

 

Once fully out of the EU, sales going in and out of the UK will be treated as imports and exports and so subject to different VAT treatments to now, where they are considered as intra-EU movements. VAT on expenses incurred in other EU countries will probably be more difficult to recover.

 

For UK businesses selling digital services in the EU, VAT MOSS will continue to apply but on a non-EU basis, meaning the operation of VAT-MOSS is likely to become more complicated.

 

Since the decision was made to exit it has come to light that the UK and EU have disagreed on several occasions over the scope and operation of UK taxes including patent box, changes to the taxation of controlled foreign companies, differential rates of insurance premium tax and capital duty.

 

Once out of the EU, the powers in London, Edinburgh and Belfast will dictate tax rates and structures according to the UK’s needs and subject to whatever settlement is made with Europe. It is also anticipated that more tax incentives will be introduced to encourage investment in the UK as we break away from needing to seek EU approval on issues concerning R&D credits, the patent box, and executive investment schemes.

 

At Intouch we will, of course, be keeping a keen eye on developments and advising our clients on how to get the best from their Limited Company. To benefit from unlimited advice whenever you need it, sign up to our all inclusive monthly service and rest assured that we’re here for you, whatever the future holds.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Contractors urge Osborne to keep his focus in this week’s Budget

This week’s Budget

The pre-Budget media train has been in full motion over the weekend with genuine personal service companies (PSCs) all being wrongly tarred with the same tax avoiders brush. Trading through a personal service company is perfectly legal and above board. That is the correct starting point.

 

Surely if that premise was untrue all of these heinous crimes would have lead to fines or custodial sentences, or perhaps just changes to the legislation to catch the baddies. But that hasn’t happened.

 

FCSA is rightly pleading with Osborne to ”get his facts right before tarnishing all contractors with the same brush ahead of Wednesday’s Budget”. Contractors and freelancers are a valuable part of the UK’s workforce and those operating legitimately should not be punished as government look to clampdown on abusers.

 

Intouch supports tightening of the rules to make the system fair and just, but are singing from the same hymn sheet as FCSA in urging government not to attach genuinely independent workers who bring their highly valuable knowledge and experience into companies when they’re needed.

 

What’s likely to come up on Wednesday for contractors?

Contractors are already expected to deal with changes to the way dividends and expenses are taxed. Here’s what will be of interest on Wednesday lunchtime:

 

  • Dividends – the current tax credits will go and the new dividend tax kicks in on 6th April. Our Dividend ebrief tells you more about the new rules, what they mean and what you can do to make the most of your dividends.
  • Travel and subsistence expenses – any contractors who are under the supervision, direction or control (SDC) of their client will lose tax relief of their T&S expenses. This is likely to hit Umbrella workers the hardest as well as any contractors operating within IR35.
  • Stamp duty on second homes – any contractors with a second home will have to pay a 3% Stamp Duty surcharge.
  • IR35 – silence was golden in the Autumn Statement in which IR35 was put to one side. But we’re expecting it to raise it’s head again now Spring is here. The discussion document issued last year will most likely progress to consultation and we already know to expect an improved Employment Status Indicator Tool by the end of this year.
  • Income Tax threshold – it’s expected that the Personal Allowance will rise to £11,000. We also anticipate seeing the higher rate income tax threshold rise, probably to £43,000, as government continue to edge towards their longer term target of £50,000.
  • Company liquidations – changes likely to come into effect on 6th April mean any contractor looking to wind up their company but then continue contracting will have their distributions chargeable to Income Tax, rather than Capital Gains Tax. In short, this is a huge blow to the plans many contractors had to close down a company without perhaps retiring for good.

 

Other speculation

It’s more than likely that the Chancellor will continue with his focus on tax avoidance and clamping down on those who use marketed schemes to avoid paying their fair share.

 

Rumours are being leaked about Osborne reverting back to the old limit of 40p additional income tax rate band. It’s also unclear what the Chancellor will announce about pensions. While talk of major changes to the system of pension tax relief is making its way around the rumour mill, it seems more likely that there will be a reduction in benefits currently enjoyed by savers. If this proves true on Wednesday then now doesn’t seem like the right time to further reform pensions.

 

48 hours to go

With the Budget less than 48 hours away, the speculation will keep going round until the Red Box is opened in the House of Commons. We will be watching with interest and unpicking exactly what Osborne’s announcements mean for contractors. Make sure you’re in the know. Keep an eye out for our Budget special blog.


In the meantime, download our 2015/16 tax yearend ebrief to ensure you’re making the most of your money before 5 April.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

What can we expect in the 2014 Budget?

What can we expect in the 2014 Budget?

Spring is finally on the way and that must mean that it’s nearly Budget time!

The Budget is the annual statement made by the Chancellor of the Exchequer, on behalf of the Government, to set out spending plans for the year ahead.  It also announces details on any new tax rates and bands, along with changes to any existing taxes.  Any increases (or decreases!) on duties are included too, on items such as beer, spirits, cigarettes and petrol.

The Chancellor will make his Budget speech on 19 March 2014, but there are a few things that we already know will be announced thanks to the Autumn Statement last year.  Some of these will no doubt be of interest to our readers.

  1. The normal tax code limit will increase to £10,000, for those under 65.
  2. The basic rate band decreases from £32,010 to £31,865.
  3. The new Employers Allowance will be available, allowing small employers to save up to £2,000 a year in Employer’s National Insurance.
  4. The benefit in kind limit on a beneficial loan increases from £5,000 to £10,000.
  5. Beneficial loan interest in decreasing for the first time in 4 years, from 4% to 3.25%.
  6. The annual pension limit decreases from £50,000 to £40,000, and the lifetime limit decreases from £1.5million to £1.25million.
  7. The ISA allowance for the year increases from £11,520 to £11,880, of which half can be cash.
  8.  The junior ISA limit increases from £3,720 to £3,840.
  9. If you own a property that you’ve rented and are intending to sell the last 18 months will be an exempt period for Capital Gains Tax purposes – this was previously 36 months.
  10. The recovery of Statutory Sick Pay (SSP) is abolished.

We are also expecting final legislation covering offshore intermediaries and possibly the introduction of onshore intermediaries’ legislation covering specifically agency workers. There could also be personal service company announcements connected with the House of Lords committee hearings on IR35. So this could be an interesting Budget.

Intouch will be issuing a full budget summary to our clients shortly after the speech, along with an analysis of how it may affect you.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.