Following tax changes included in the latest Budget, self-employed contractors that use personal service companies, in order to pay less tax, will soon be charged accordingly.<\/p>\n
Most contractors, including personal service companies, work via a limited company and take most of their income in the form of dividends, which is more tax efficient than taking a large salary.<\/p>\n
Now, following the legislation change responsible for the dividend tax rise, a contractor who bills their client for \u00a380,000 will be required to pay an additional 2.5 per cent \u2013 or \u00a32,000 \u2013 in tax.<\/p>\n
Chancellor George Osborne announced that the dividend tax will rise from April next year.<\/p>\n
Currently, taxpayers paying the basic rate are not required to pay any tax on dividends.<\/p>\n
However, under the new rules, the first \u00a35,000 of dividend income each year will be exempt from tax, but anything over that amount will be subject to it.<\/p>\n
For dividend income above \u00a35,000, basic-rate taxpayers will soon have to pay 7.5 per cent, while higher-rate taxpayers will pay 32.5 per cent tax, which represents an increase of 25 per cent.<\/p>\n
Anyone who pays the additional 45 per cent tax rate will have to pay a dividend tax rate of 38.1 per cent, which is up from the current figure of 30.5 per cent.<\/p>\n
While most contractors legitimately bill their employers through their personal company, a large number should not technically be classing themselves as contractors because they are doing the job of a typical employee.<\/p>\n
In these instances, this is a breach of the IR35 tax avoidance rule, which clearly states that people cannot be \u201cdisguised employees\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"
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