Where 2018/19's tax year changes don’t champion contractors
The pitter-patter of rain at your window reminds that it’s definitely April, but it’s also the time that contractors rightly wonder if there’s clouds on the horizon from the new shower of tomorrow’s tax changes, writes James Trowell, head of accounting and taxation at Dolan Accountancy.
But before you even delve into the pitfalls and footholds of the 2018/19 contracting landscape -- a landscape which no longer needs to wait until the new tax year to significantly alter, there’s some general changes which will likely affect you once today's ‘old’ tax year ends.
The Personal Allowance for example is increasing to £11,850 which many will welcome. But, if you live in England, you’re going to need this extra £350. That’s because council tax is going up by an average around the UK of 5.1% (average increase of £86 for the year).
And this increase comes at a time when ISAs are not going up -- you’re still going to be limited to £20,000. It could be a real blow considering potential relief via Help to Save is being postponed until October. This Help to Save scheme would have helped by offering regular savers the ability to deposit £50 a month, with a view to receiving up to £1,200 in tax-free bonuses.
So, many PSC contractors will therefore hope their business, if not them personally, will be better off. But although there’s less numerous takebacks or clampdowns than in previous years, notably 2016, the dividend allowance is reducing by a massive £3,000.
A slightly higher CGT allowance of £11,700 (an increase of £400), and only effective when contractors ‘limit their dividend tax exposure and look to close down’ with their PSCs, isn’t likely to compensate. Oh, and going into more exotic arrangements to boost your bottom line looks choppier than ever before, as more requirements around disguised remuneration are incoming. Indeed, the tax year that the Disguised Remuneration ‘2019 charge’ arises in starts tomorrow (April 6th 2018).
However, other than the dividend allowance cut, the changes are somewhat piecemeal and, if you take tax advice, your take-home pay as a contractor shouldn’t be overly affected. But the bigger picture for people who work for themselves doesn’t look good.
Outside of the new tax calendar, we’ve got private sector IR35 reform looming large while inside it, those who’ve ‘gone it alone’ as sole traders face paying more Class 2 NICs from this month too. Taken with the fact that you’ll have £3,000 less in tax-free dividends via your own company, it now seems glib of the chancellor to claim as he did at the Spring Statement that his party is the “champion of the entrepreneur.”