Today George Osborne MP delivered the second Budget of 2015.
The Chancellor said that ‘economic security’ is at heart of the Budget and will raise £5bn from tax evasion/avoidance measures including, ominously, an intention to target directors who are the sole employee of their company.
Once again personal service companies, i.e. limited company contractors, are under scrutiny: ‘We’re consulting today on how to deal with the increasing abuse of the rules around disguised employment when working through a personal service company.’ We will keep you informed of this consultation process. At paragraph 2.183 of the Summer Budget Report yet another consultation process in respect of IR35 has been announced but anyone hoping for abolition will be disappointed.
Following on from the March 2015 Budget the Chancellor confirmed at paragraph 2.182 of the Summer Budget Report (but not in the speech before the Commons) that detailed proposals will be made for restricting expenses and travel allowance for umbrella workers.
Of significance to limited company contractors the Chancellor promised new funds for HM Revenue & Customs to raise additional funds by targeting anti-avoidance measures. This has been promised before but limited company contractors should be aware that complacency is no longer an option regarding potential IR35 liability.
The Chancellor also promised to remove permanent non-domiciled status. Any taxpayer in the UK for 15 of the previous 20 years will be liable for UK tax for income earned anywhere in the world. This may affect limited company contractors who frequently work outside the UK.
Reforms were announced in Corporation Tax; whereas CT will fall to 19 per cent in 2017, payment dates will be brought forward in line with other countries.
Of potentially greater significance the Chancellor announced plans to overhaul tax on dividends. There will be a tax free allowance of £5,000 but tax on dividends will increase. This is, of course, the principal tax saving gained by operating through a limited company and may have a significant effect on limited company contractors irrespective of any direct reforms to IR35. The Chancellor confirmed (at paragraph 1.188) that ‘those who receive significant dividend income – for example due to very large shareholdings (typically more than £140,000) or as a result of receiving significant dividends through a closed company – will pay more.’ A close company means a company which is privately owned and controlled and has five or fewer participants – so the typical limited company contractor where the only director is also the majority shareholder will be affected.
In respect of income tax the lower rate threshold will increase to £11,000 and the higher rate threshold will increase to £43,000.
Please contact us if you have any questions.