Summary of presentation at the IPSE Freelancer MoneyBox Event January 2016
“The staff and accountants always offered me a network of support and advice and nothing was too much trouble for them.” Selena B
Contents IPSE Freelancer MoneyBox - Event introduction 2 Self-assessment tax return – Meeting this year´s deadline 3 Salary set-up 4 Dividends 6 Is it worth taking more dividends out before April 2016? 8 Coming to the end of a contract? Plan fast if you are closing down 9 Travel and Subsistence - Supervision, Direction or Control 10 Our top tips ahead of these recent changes 11 APPENDIX 12
www.kbaccountancygroup.com | 020 7078 0211 IPSE Freelancer MoneyBox - Event introduction K&B Accountancy were delighted to attend the IPSE Freelancer MoneyBox event, by Johnny Leung, a Director at K&B Accountancy Group. For more information and hosted on the 13th January 2016. We thoroughly enjoyed the evening and hope you regular updates, please follow us on social media and visit our blog. did too. This document will provide a re-cap of the presentation that was presented www.kbaccountancygroup.com/blog Johnny Leung, Director at K&B Accountancy Group, presenting his talk. IPSE members enjoying the exhibition. 2
www.kbaccountancygroup.com | 020 7078 0211 Self-assessment tax return – Meeting this year’s deadline The 2014/2015 self-assessment tax return deadline is fast approaching. Hopefully that a large number of people will be submitting their last minute tax returns online you are well on top of your paperwork and it has already been submitted to HMRC. which could put a lot of pressure on the HMRC´s online system. Therefore, to avoid If you have not completed or started to complete your self-assessment tax return, any potential delays and unnecessary stress, submitting your tax return before the please get in contact with your accountant urgently. Missing the deadline on 31st weekend of the 30th and 31st January is recommended. January will result in a late penalty of £100. Further delay can lead to a substantial fjne, including daily penalties. At K&B Accountancy Group we include self-assessment tax returns as part of our monthly package, with no additional fees*. For one off personal tax returns, our fee Whilst the deadline is on the 31st of January, this is a Sunday. Therefore, your starts from £125 plus VAT. accountant might not be able to submit your self-assessment tax return any later than the 29th January. If you are processing your own tax return online, we strongly * Subject to T&C’s. recommend you avoid submitting it on the 30th or 31st of January. We are expecting f l e s r u o y e v a e l u r o u y o y e r t u m i s e b k u s a y M o n t a e m e r i a t e h r g e u h o t n e e s a c n i . n , e s r u u s e t s r i d x e a t t c e p x e n u 3
www.kbaccountancygroup.com | 020 7078 0211 Salary set-up Contractors who are outside of IR35 will be familiar with the low salary, high dividend set-up. However, how low should the salary be for this tax year? Before 5 April 2016 It is worth noting that although employer allowance is going up to £3,000 after As a result, those who are claiming a salary at the primary threshold of £8,060 or less April, most contractors operating a Personal Service Company (PSC) will not benefjt. could be missing out – even if you have to pay a small amount of employee’s National This is because companies operating with the director as the sole employee will no Insurance Contribution (NIC). This is because director salary is a tax-deductible longer be eligible for this relief from April 2016. 2015/2016 is the last year that this expense. As shown on our calculation (Table 1) by paying £304.80 NIC, you could get generous allowance can be capitalised. £508 worth of company tax saving back (net saving of £203.20). There is still time to maximise your salary set-up, as the tax year does not end until April. Table 1 4
www.kbaccountancygroup.com | 020 7078 0211 After 5 April 2016 When we go into the 2016/2017 tax year, having a salary over the primary threshold might not be as benefjcial as this year. This is because if you are the sole director and employee of a company, your company will have to pay employer’s NIC again. We have prepared some fjgures (see Table 2 below), to assist contractors when making a decision regarding their salary in the 2016/2017 tax year. A more detailed schedule, including dividend calculation is included in the Appendix on page 12 at the back of this document. Table 2 At the moment we do not have any further information detailing if a limited company with husband and wife set-up will be excluded from the employment allowance. HMRC’s consultation for the employment allowance ended on 3rd January. We will provide you with an update when know more. 5
www.kbaccountancygroup.com | 020 7078 0211 Dividends There are two signifjcant changes in the way dividends will be taxed after April 2016. credit, there will be a £5,000 allowance. This makes the fjrst £5,000 worth of dividends tax-free. 1) The 10% tax credit is being abolished. This means that from 6th April onwards, what your company declares is exactly what you will get in cash. No more grossing 2) There will be a 7.5% increase on the current year’s effective tax rate, across all tax up from Net to Gross dividends. From 6th April, the effective tax rate will be the rate bands – as explained in Table 3 . same as the actual tax rate, unlike the current regime. Also, instead of 10% tax Table 3 6
www.kbaccountancygroup.com | 020 7078 0211 An example: To demonstrate how the changes of dividend tax will impact contractors and freelancers, we are going to compare dividend tax liabilities before and after 5 April Although the entire dividend is now 2016 with the following scenario: inside of the basic tax rate band (10% grossing up no longer exists), dividend A contractor operating outside of IR35 taking a salary of £10,000 per annum and tax will increase from £600 to £2,025! £33,000 worth of dividend Over a 300% increase for basic rate tax on dividend! 7
www.kbaccountancygroup.com | 020 7078 0211 Is it worth taking more dividends out before April 2016? Many clients have asked us here at K&B Accountancy Group if it’s worth taking more dividends out before April 2016. It’s defjnitely the case if you’re not fully utilising your basic rate band, as dividend is effectively taxed at 0% before it falls into a higher tax rate band this tax year and, more importantly, unused basic tax rate band will be lost forever after the tax year ends. Contractors should always take dividends up to their basis rate threshold if their company has suffjcient profjt. It’s also worth taking more money out before April 2016 if you’re expecting to withdraw dividend in the higher tax rate band. For example, if you’re planning to take out a large amount of funds for a deposit on a property, it’s best to do so before April – provided your company has enough reserves – rather than waiting until you fjnd the property and are faced with the additional 7.5% income tax after April 6. 8
www.kbaccountancygroup.com | 020 7078 0211 Coming to the end of a contract? Plan fast if you are closing down If you are at the end of your contract and planning on closing down your company, please consult with your accountants as soon as possible. This is because the government are proposing to treat distribution after 6th April 2016 from a liquidation, as an income distribution, where: • An individual receives a distribution from the winding up of a closed company in respect of shares held. • Within 2 years the individual continues to be involved in a similar trade or activity. HMRC consultation on the treatment of company distributions will end on 3rd • A main purpose of these (entire) arrangements is to gain a tax advantage. February 2016 and further details will be published, so watch this space. This could mean instead of paying 10% capital gain tax on the distribution by utilising Entrepreneurs Relief (ER), the amount will be taxed as if it is dividend under the new tax rules. This will effectively take ER away from contractors. 9
www.kbaccountancygroup.com | 020 7078 0211 Travel and Subsistence - Supervision, Direction or Control Contractors working through an intermediary, such an umbrella company will not be able to claim Travel and Subsistence expenses for ordinary commuting after 5 April 2016. This is applicable unless they can demonstrate and provide evidence on the lack of Supervision, Direction, or Control. It means that most, if not all umbrella contractors, currently under an overarching contract will be affected. Although the new test on Supervision, Direction, or Control is not required for a limited company, the Travel and Subsistence restriction still applies to contracts that are caught under IR35. Therefore, for PSC contractors, it’s now important more than ever to ensure you’re e c n e t s i s fully aware and understand your IR35 status to avoid non-compliance. b u s S t c d a n r a t n l e o v c a o r t T s e e h i l T p The good news is that HMRC has not touched IR35 this time, but they’re likely to p . 5 a 3 l R l i t I s r n e o d continue reviewing this legislation and present further proposals in the future. i n t u c i t r h t s g e u r a c e r a t a h t 10
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