Getting the most out of your contractor limited company while it’s still thriving
There is a growing number of people offering their services through intermediary companies who are considering their options as a result of the impending changes to the way the rules for IR35 are implemented, writes Patrick Gribben, head of client services at Intouch Accounting.
These changes are scheduled for implementation from April 6th 2020. But with the legislation still only in draft form, many hirers have been late to react and that lack of planning has led to blanket assessments and bans on engaging talent through Personal Service Companies.
With so much uncertainty around the short to mid-term future of contracting careers, it is natural that many PSC directors are asking how to make their hard-earned funds go further, and provide advantages which their companies afford but which may be sitting unused.
There are three appealing options when considering how best to direct company funds in times of uncertainty likes these. They are outlined below:
1. Maximise your income within the basic rate band
If you haven’t already taken income through salary, dividends and other sources that see you at the basic rate band of £50,000, then you should consider topping up your dividends. It’s a tax-efficient way to get your money from the company, costing you only 7.5% in income tax on dividends.
2. Have the company make pension contributions on your behalf
This has the dual benefit of increasing your pension pot while saving your company corporation tax. Oh, and it doesn’t affect your personal tax rate either!
You could have your limited company fund some training for your professional development. You would need to consider the nature of the training and if that training is to inform the continuing development of existing skills and knowledge, then there is no issue with your company footing the bill and claiming corporation tax relief for doing so. This is also likely to give you a skills advantage if you need to start looking at opportunities, at least in the short term, in the Fixed Term Contracts (FTC), umbrella or permanent employment markets.
But a word of caution. If the training is only aimed at helping you develop your skills and knowledge in areas that you don’t currently have them in, then the training probably isn’t going to be allowable for corporation tax relief.
A little bit of history (repeating)
While all financially shrewd limited company contractors should strongly consider acting on the above trio, it is also worth thinking about the nature of the uncertainty that we are seeing at the moment and reflecting on lessons learned from the IR35 changes imposed on the public sector in 2017.
From the experience many of us gained helping the public sector implement these changes almost three Aprils ago, a similar overreaction occurred, as nervous hirers instructed that a disproportionate number of roles were caught by IR35. Shortly thereafter, these hirers struggled to attract and retain talent for their projects which resulted in a more commercial, accurate view of IR35 being introduced. We are seeing the same trend unfold in the private sector today.
It seems that many end-hirers are yet to consider how they can change their engagement methods, processes and procedures to still fill their skill shortage gaps with genuinely self-employed workers. So if you’re a small ‘Ltd’, a ‘Plc’ or somewhere in between, it would be sensible to avoid knee-jerk reactions; work with an IR35 expert and take advice on how to respond to inside IR35 assessments, with the expectation of there being some sort of market rebalancing once projects stop getting delivered.