Tax Yearend eBullets
Umbrella contractors: Get ready for change
April 6 isn’t just the start of the tax year, it also marks the beginning of major changes for anyone who contracts through an Umbrella company. If you’re serious about contracting and have a day rate of approx. £130, then you really should be considering moving to Limited. This ebullet outlines what’s to change and how you’ll lose out.
Your professional life will change
In April this year:
- Your tax relief on travel and subsistence expenses will be restricted, where you are subject to supervision, direction or control (SDC)
- You’ll automatically be deemed as subject to SDC by HMRC and your Umbrella must determine otherwise with the help of the client
- Greater compliance checks will be enforced
- Other expenses you claim will be taxed under PAYE
- By law you will have to submit a Self-Assessment Tax Return to obtain tax relief on other expenses
- Umbrella charges may increase to pay for the additional compliance
So what are your options?
- Be moved over into a Limited Company by your current Umbrella provider if (or when) they offer this service
- Run the risk of other untested models designed to avoid the changes
- Set up your own Limited Company
- Return to permanent employment
- Stay with your Umbrella and see if the model still works for you.
Did you know? Umbrella workers’ take home pay is under threat from increased taxation.
Where do you go from here?
If you need to discuss your options, then now really is the time to do so, before the changes come in. Speak to our expert team, who are on hand to advise what’s best for you, your circumstances and whether setting up a Limited Company will benefit you in the long run.
Alternatively why not download our ebrief: Limited Company vs Umbrella – which is the right choice for you?
ISA allowance: Opportunities to gain tax-free income and gains
Now is the perfect time to ensure you’ve fully used your ISA allowance of £15,240. So make sure you’ve gotten the most of your tax free savings and interest.
Top tip: Use it or lose it! The limit of how much you can put into an ISA (£15,240) resets on April 6 and you cannot carry any of it over. So top up your ISAs NOW!
What are your options?
You can choose how you split your allowance; either between a cash ISA, a combined stocks and shares ISA, or you can put the full amount into either type.
What else is there to consider?
- From 2015/16, the income tax exemptions on ISAs will be preserved on death, where one spouse or civil partner leaves it to another. They will remain chargeable to Inheritance Tax (IHT) however
- The junior ISA allowance is £4,080 for 2015/16
- Those aged 16 and 17 can still put the full ISA allowance away, but they can only put it into a cash ISA
Like this kind of advice?
Here at Intouch Accounting our clients are advised at every step of their contracting career. From tips on how to prepare for tax yearend, to how they can maximise their take home pay, our personal accountants are on hand to offer guidance and support – whenever our clients need it.
Interested in joining us? Email us or call us on 01202 901 385 for a no-obligation chat about how we can help you.
Charitable donations: Give more, get more
Feeling generous? Did you know that by donating to charity you can reduce your overall tax liability, whilst also doing some good? This ebullet looks at the rules surrounding charitable giving, what you must do and how it can affect the amount of tax you pay.
Top tip: If your income is close to the higher tax rate threshold, or has slightly exceeded it, consider making a charitable donation to extend the basic rate band.
Donating in your own name? You can donate under the Gift Aid Scheme, meaning that for every pound you donate, HMRC adds on a further 25p. You cannot, however, offset your donation to increase your basic rate tax band by the gross value of the donation, if you’ve donated through your Limited Company.
Giving via your Limited Company
Payments made via your Limited Company can be considered a deductible expense for Corporation Tax purposes. As it is a company payment, it therefore doesn’t need to be declared on your personal tax return • Your company accounts may need to detail the donations that the company has made if they go over £2,000 • If you are not a higher taxpayer it therefore makes more tax sense to pay donations via your company, as you will then get 20% Corporation Tax relief – although the charity will receive 20% less in funds.
Looking for further advice on tax yearend?
Download our free ebrief: Are you ready for the 2015/16 tax yearend and beyond? to ensure you’re ready – for April 6 and the following tax year.
Dividends: Get yourself in shape for yearend
From 6 April dividends will be taxed differently. So what does this mean for Limited Company contractors? This ebullet will highlight what’s to change, what this means and what you need to be doing before 6 April.
- Current 0%
- Rates from 6th April 7.5%
- Current 25%
- Rates from 6th April 32.5%
- Current 30.5%
- Rates from 6th April 38.1%
What does the higher tax mean?
- The first £5,000 of dividends are taxed at nil rate
- Anything above the basic rate will be taxed accordingly, as detailed above
Top tip: Speak to your accountant about what you can do to make the most of the lower tax rate before 6 April.
What can contractors do to prepare?
Speaking to your personal accountant will ensure you’re in the best possible position with your dividends when April 6 arrives. If you don’t have an accountant or are planning on discussing your options with an adviser, have a think about the following:
How much in dividends you can take before April 6, before the new tax rates kick in
- What preventative measures you should be taking
- Check what your dividend policy is to ensure you’re not missing out on any opportunities
Download our full tax yearend ebrief
Looking for a more comprehensive guide on tax yearend? Download our ebrief, that covers everything you need to know and how you should be preparing as a contractor.
Personal pension contributions: ready, set, GO!
Have you maximised your pension contributions? Did you know that you can contribute up to £40,000 per year? In this ebullet we outline some of the key areas you should consider before 6 April. We also strongly advise you take advice from a regulated Independent Financial Adviser (IFA) before making any decisions regarding your pension
Did you know?
For a pension contribution to reduce your 2015/16 income you must pay on or before 5 April 2016.
Key things to consider
Personal contributions to pension schemes attract income tax relief at your highest rate of tax
- Tax relief is limited to the greater of a gross amount of £3,600 and the amount of relevant UK earnings, but subject to the overall annual personal pension allowance cap of £40,000
- If you haven’t used all your tax reliefs for the past three years then you can carry these forward to the current year in the right circumstances. Unused reliefs can also be carried forward
- Should your company be paying pension contributions, it will obtain tax relief on the contributions made
- Consider your company’s legal obligations under auto enrolment. This includes any employees or spouses of your company
Like this kind of advice?
Here at Intouch Accounting our clients are advised at every step of their contracting career. From tips on how to prepare for the tax yearend, to how they can maximise their take home pay, our personal accountants are on hand to offer guidance and support – whenever our clients need it.
Tax code: is yours correct?
Whilst checking your tax code is correct may seem like the simplest thing in the world, getting it wrong can mean underpaying or overpaying tax (both of which are not ideal!) Even if you’re sure it’s correct, with the tax yearend around the corner, now is the perfect time to ensure it’s correct.
Top tip: Think you may have been paying too little or too much tax? You can check here by using HMRC’s tax checker.
How can you check your tax code and what can you do if you think it’s wrong?
- As a contractor, you will have received a ‘PAYE Coding Notice’ from HMRC at some point which states your current tax code
- The PAYE Coding Notice will show two elements which determine how much tax will be deducted: 1. allowances and reliefs – including your personal tax free allowance 2. amounts which reduce your tax free amount – including taxable benefits and any unpaid tax from a previous tax year
- Check your tax code’s letters and numbers against what they stand for. This will give you a clear indication whether they’re correct or not
- If you think your code is incorrect, speak to your personal accountant who will be able to assist.
What else should you be considering for tax yearend?
Are you looking for a more comprehensive guide on how to prepare for the tax yearend? Download our free ebrief: Are you ready for the 2015/16 tax yearend and beyond? to ensure you’re ready – for April 6 and the following tax year.