The New Tax Year Resolutions
Maximise your take home pay
As a serious contractor, maximising your take home pay will probably be at the top of your priority list. But how can you ensure you’re making the most from the opportunities available to you this new tax year? In this eBullet we explore the key areas to be aware of, to ensure you’re taking home as much of pay as possible
Make use of the new Personal Savings Allowance
This new tax year, anyone aged 18 + will be able to earn up to £1,000 a year on their personal savings – tax free. Take a look at the tax rate bands to see how you can benefit:
- Basic-rate (20%) taxpayers – can earn £1,000 interest without tax (saving a maximum of £200 compared with 2015/16 tax year).
- Higher-rate (40%) taxpayers – can earn £500 interest without tax (saving a maximum of £200 compared with 2015/16 tax year).
- Additional-rate (45%) taxpayers: £0 – unfortunately do not get an allowance.
See the Treasury’s factsheet for more information.
The Personal Savings Allowance is being dubbed as the ‘biggest savings shake-up for a generation’, so don’t miss out!
Tax free dividend allowance
From 6 April, the current dividend tax credit will be replaced by a new tax-free dividend allowance of £5,000 per year for all taxpayers.
Any dividends taken over the £5,000 limit will be taxed at the new rate of 7.5% for basic rate tax payers, 32.5% for higher rate taxpayers and 38.1%for additional rate taxpayers. Tax will not be deducted at source and taxpayers will have to use their Self Assessment Tax Return to pay any tax owed.
Make sure you take up to £5,000 of tax free dividends this new tax year. Speak to your Personal Accountant for more advice and guidance.
Claim for all your travel and subsistence expenses
This is where Umbrella contractors will miss out greatly this tax year. Their ability to claim for T&S has been removed, unless they can prove they are not subject to Supervision, Direction or Control (SDC) and only then, can they claim back once they’ve put their expenses through a Self Assessment Tax Return.
As a Limited Company contractor, you can continue to claim for all T&S expenses, provided you are outside of IR35. This will give your company corporation tax relief and you personally will be able to continue claiming expenses. If you need advice and guidance on how to do so, speak to your contractor accountant.
Finding the perfect accountancy relationship
Part of being a successful contractor comes from having the right accountancy support, that’s always looking out for you and what’s best for your money. So what happens if you’re not getting what you deserve, either from your current contractor accountant, or other chosen accountancy method. It might be time to make the resolution to change.
If any of the following look familiar from your current contractor accountant, then it’s time to find the perfect accountancy relationship
What happens when you switch accountant and what advice should you take?
Try to switch at your company’s yearend to avoid any catch up service charges (should they exist)
- Keep an eye out for hidden charges; know what your new contractor accountant does and doesn’t include within their monthly fee
- Your old accountant should pass all your company information over to your new accountant
- The switch over process for handling your accounts can take a few weeks, but your new accountant can still advise you during this period
How can Intouch Accounting help?
If you’re considering either staying with a contractor accountant or looking to start using one, then Intouch can help:
- Take a look at our all-inclusive monthly service to see what’s included
- Our additional services include everything a serious contractor will need
- With free company incorporation for those new to Limited Company contracting and at least 25% off switcher fees if you’re changing accountancies, now is a great time to join Intouch Accounting
Download our full supplier checklist to ensure you get the accountancy relationship you need
New tax year, new you?
If you’re expecting children this year, or you’re getting married – congratulations! What an exciting year you have ahead of you. Whilst you’re probably counting down the days, it’s worth understanding how changes for the new tax year could affect you and potentially be beneficial. Read on to understand more….
- Check your child benefit allowance to see how much you’re entitled to per child
- If anyone in your household has personal income that exceeds £50,000pa, the child benefit will be clawed back through Self Assessment (income above £60,000pa will result in full repayment of the child benefit)
- Know the childcare voucher allowance for your tax band. Bear in mind that your tax band is purely based on your employment income (excludes dividend income – speak to your accountant if this affects you)
Worried about work after having children?
It can be a daunting thought, but contracting can offer you the best of both worlds, both personally and professionally. Why not check out our blog on how contracting can pave the way to a successful and family friendly career.
If you already have a Limited Company or are thinking of going Limited, have you considered whether your spouse should have shares in your company?
- If your spouse does not use all their basic rate tax band then it’s worth having your accountant take a look at your share structure and shareholding to see what benefits could emerge
- Consider how income producing assets and investments are owned once you’re married. Typically income held jointly is taxed equally but you can change that split if it’s beneficial
- Check whether your spouse can make use of your personal allowance
- Make sure you know what your income is, and the allowances you are entitled to. If you are married, do so for your spouse as well
Increase your skill set & potentially your day rate
In a recent survey we carried out, contractors told us that some of their greatest regrets when contracting came from underselling themselves, or accepting lower day rates. Does this sound familiar? If the answer is ‘yes’, or you feel like it’s time to increase your day rate, then this is the eBullet for you. Read on for steps on how to increase your skills and get the day rate you deserve:
STEP 1 – Where to start and what to look out for
Find out what skills are in demand – Speak to fellow contractors or take a look at the most popular forums to see if there are any trends appearing in a demand for specific skill sets. Check out the top latest skills and locations – IT Jobs Watch is a fantastic site where you can see which IT skills are being requested by recruiters and clients. It also shows you the top locations in the UK, so you can see what’s in demand in your local area.
STEP 2 – Update your skills, claim for training costs then show them off
Updating existing skills – It’s always a good idea to update existing skills, to ensure you’re at the top of your game. If you’re registered on the Standard Rate VAT Scheme, you can claim VAT on any training you undertake to update existing skills. However, you cannot claim VAT if you are registered on the Flat Rate Scheme or if you undertake training for new skills. Promote yourself – Make sure you update your CV, LinkedIn profile and business website with your newly acquired skills. Sounds simple, but with a busy professional life it can get put to the bottom of the priority pile. Don’t forget to also include any recent experience and testimonials from satisfied clients.
STEP 3 – Be confident in your worth and making sure you get the day rate you deserve
Go for it! – You’ve checked your new skills are in demand and the going rate for what you do, so don’t be afraid to ask for it! Contracting is all about freedom and tailoring your career to fit what’s right for you, so take the leap. You may be pleasantly surprised…
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…
Plan your contract breaks
Contracting isn’t all about hard work and no play and contractor-burnout can be damaging to both your career and reputation. So why not take a step back from your current contract (or one that you’re about to start) and think about taking some time off before you start the next one?
If you’re considering a break but don’t know where to start, here’s a little inspiration for you:
Really get away from it all – go long haul Are you a culture vulture, in need of some tropical heat, or just simply need a complete change of scenery? If you’re looking for inspiration, why not take a look at the top 20 long haul destinations for 2016.
Staycation – the new going away is staying at home If you don’t want to travel to another country, why not have a staycation? Visit local attractions, friends and family around the country, travel from coast to coast in a day or simply just relax at home? The beauty of a staycation is you can pretty much travel anywhere in the UK in under 24 hours, so why not look at planning your staycation today?
Try a new hobby – Have you always found yourself lusting after a new hobby, but never had the time to give it a go? Take some time off to try something new. You never know, it may introduce you to new people and markets, which could potentially open new contracting doors. Why not take a peek at the ‘Do Something’ blog for inspiration?
And relax… If doing noting is your idea of total relaxation, then why not take a week or two to do just that! Read a new book, visit a spa, have long lie ins, watch movies, go for walks, the list is endless! Do whatever relaxes you and recharges your batteries before your next contract.
Make the most of your ISA allowances
ISAs offer opportunities to obtain tax-free income and gains and are an excellent investment for higher rate taxpayers. This new tax year, you should really be considering the opportunities ISAs offer.
What’s the maximum allowance?
For 2016/17 the maximum allowance is £15,240
What about Junior ISA allowances?
The Junior ISA allowance is £4,080 for 2016/17
Things you should know when considering ISAs
- From 2016, the income tax exemptions on ISAs will be preserved on death, where one spouse or civil partner leaves it to the other. They remain chargeable to Inheritance Tax (IHT) however
- Allow enough time to consider your options and ensure you are comfortable that the choice you make reflects your attitude to investment
- Enterprise Investment Schemes (EIS), Seed EIS (SEIS) and Venture Capital Trusts (VCTs) offer opportunities to reduce your current income tax liability as well as being tax efficient investments in their own right; with tax exemptions on dividend income and Capital Gains
Looking to buy a home in 2016/17?
If you are a first time buyer then the government’s Buy-To-Let ISA can help, by adding 25% tax-free to whatever you manage to save (up to a limit of £12,000).
Learn from last year’s mistakes
It’s human nature to make mistakes, but what if there was a way to stop them happening from the outset? In this eBullet we list the top 10 mistakes Limited Company contractors make, to help you keep an eye out for them.
- Ignoring professional advice – your professional advisers know more than you, so take their advice on board.
- Missing deadlines – if fines aren’t enough of a deterrent, having HMRC chasing you should be!
- Going Limited too late – using an Umbrella when you are better off being Limited. Don’t wait to explore your options.
- Not claiming all of your expenses, resulting in reduced overall take home pay.
- Starting a contract without the contract! Make sure you’ve agreed on both yours and your client’s terms and conditions before starting work.
- Using the wrong accountant. If they don’t offer the service you need or are charging you too much, it’s time to look elsewhere.
- Merging personal and professional expenses. Keep them separate.
- Ignoring IR35 – remember you must consider it before and during every contract to ensure you remain outside.
- Selling yourself short, or being too picky with contracts. Both can have a detrimental affect on your overall success.
- Not making use of this suite of eBullets for making the 2016/17 tax year your best year yet!
Has point number 6 got you thinking?
If the answer is ‘yes’ then it’s time to consider switching to a contractor accountancy that you can trust. Why not take a look at our eBullet: Finding the perfect accountancy relationship to help you know what to look for in a good accountant.
Alternatively, give our expert team a call on 01202 901 385 to discuss your circumstances.
Discover the benefits of being Limited
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 approximately £130, then you really should be considering moving to Limited. This eBullet outlines what’s to change and what you could lose out on by not being Limited.
Your professional life will change if you’re not Limited
In April 2016:
- If you’re contracting under an Umbrella 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
What can Limited offer you that Umbrella can’t?
- Access to greater tax relief which will reduce your overall tax liabilities and will increase your overall take home pay
- You’ll have the ability to pay yourself a wage as an employee of your Limited Company and pay yourself dividends as a shareholder
- Currently Limited Companies are less under the spot light than Umbrella workers
- The Limited Company model is a tried, tested and approved model that’s complaint and assured
Where do you go from here?
If you need to discuss your options, our team of experts are on hand to talk through your circumstances. Speak to them today, about 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?
Prepare for the future
We all know the importance of having a plan for the future, but how can you make sure you’re aware of what needs to be done and how you can prepare in the new tax year?
In this eBullet we look at what you should consider when it comes to pensions and savings – now and for the future.
- Ensure you’ve made use of the available tax allowances – paying less tax in the long run will increase your savings and create a bigger nest egg for retirement
- Maximise the amount you put into your pension each year, with the current maximum allowance being £40,000. Remember that the maximum allowance is based on your total gross contributions, including both your personal and company contributions
- You can top up your allowance for the current tax year with any unused allowance from the previous 3 tax years. Use HMRC’s annual allowance calculator to see if you can top up your allowance
- Make your pension contributions through your Limited Company to ensure you gain Corporation Tax relief
- Speak to a regulated independent financial adviser regarding you pension and the available options to you
- Invest some time in exploring your ISA options. For 2016/17 you can put away a maximum of £15,240 and from 2017 the maximum will increase to £20,000
- From April 2017 the government will also be lending a helping hand. If you’re aged between 18-40 and save up to a maximum of £4,000 each year until your 50th birthday, they will top it up by a further 25% The ‘Lifetime ISA’ as they’re calling it, carries no minimum amount you must save each year to be eligible for the 25% top-up
- It ends when you reach 60, when you can take out all the savings tax free
- If you remove your savings prior to your 60th birthday you will lose all of the government’s contributions (including any interest incurred), along with paying a 5% charge
Where do you go from here?
It’s always best to seek professional advice when it comes to your pension and savings from a regulated independent financial adviser.
Our Personal Accountants can advise you on the overall effect your pension and savings can have on your contractor accounts, so give our team a call today on 01202 901 385 to help you plan for tomorrow