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Contractor News

News and updates from industry experts

By Contractor Hub, Apr 20 2016 04:00AM

Following the recent 2016 Budget, there have been some tax changes that will take place for the new 2016/2017 tax year.


Here we discuss the changes that will have an effect on the UK’s contracting community:



Personal Allowance


As expected, the Personal Allowance rate will increase. Previously, the amount of income you can earn before you start paying Income Tax was £10,600, however, this has risen to £11,000, and will then increase to £11,600 in April 2017.



Higher rate of Income tax changes


Those who pay the higher rate threshold of Income Tax will be interested to learn that this rate has now risen from £42,385 to £43. This will increase further to £45,000 in 2017.



National Insurance Contributions


At the moment, those who are self-employed pay two different types of National Insurance Contributions – Class 2 and Class 4.


Contractors pay Class 2 contributions if they take home £5,965 or more a year and this figures equates to £2.80 per week. Class 4 is paid by those earning £8,060 or more annually.


During the Budget it was announced that as from April 2018, Class 2 will be scrapped. Contractors may be concerned, as part of this National Insurance goes towards building a State Pension, however, Class 4 will see some changes that’ll include the benefits that came with Class 2.



Corporation Tax


All limited company contractors will need to pay Corporation Tax on its taxable profits – this is basically any money that your company makes from doing business, investing and selling assets for more than they cost.


Businesses will benefit from the main rate being cut once again from 20% to 17% in 2020.



VAT registration threshold


Value Added Tax, otherwise known as VAT, is a business tax that is charged on all goods and services.


Previously, If your business’ annual turnover was more than £81,000 you would need to register your business for VAT.


However, this threshold has now increased to £83,000.



Dividends


The way in which dividends are taxed will be seeing changes with, what the government has said, is a much simpler method, as the dividend tax credit will now be replaced by a new £5,000 tax-free dividend allowance for all taxpayers.



New tax-free allowances


For those who sell goods, provide services or rent out part of their property for storage, they’ll be interested to learn that there will now be a £1,000 tax-free allowance for this type of income.


So, for those who earn up to £1,000 from things like selling goods that they’ve made, or those who rent out part of their property, such as a driveway, garage of loft – they will no longer need to pay tax on that first £1,000.



Personal Savings Allowance


The introduction of the new Personal Savings Allowance will mean that basic rate taxpayers will be able to earn up to £1,000 in savings income tax-free, and higher rate taxpayers can earn up to £500.


This means that most people will no longer pay tax on savings interest and bank and building societies will stop deducting tax from your account interest.



Lifetime ISA


The government will be introducing the Lifetime ISA, which will go live from April 2017.


The purpose of this is to aid people in saving towards either a retirement fund (to use after you are 60) or to buy a first home – with the help of the government too.


Any adult under 40 will be able to open a Lifetime ISA account and up to £4,000 can be saved per year with the government topping up your savings by 25%.



By Contractor Hub, Apr 13 2016 03:00AM

There are many reasons why contractors decide to hire an accountant.


For many it may be a case of them not having enough time to concentrate on that side of the business, choosing to focus more on finding new clients and earning money; for others they might not be confident enough to fill out returns correctly.


Although some people may believe that a contractor accountant is a luxury, they can be an excellent source of professional financial advice and guidance and can save you money in tax savings, as well as ensuring that you meet all of your legal obligations.



What to look out for in a contractor accountant


If you would like to hire a contractor accountant, there are a few key factors to take into consideration to find the perfect one for you:



Shop around


It’s always best to have a look around and compare what each firm can offer you – you need to find someone who will best suit you and your needs. Speak with your assigned accountant before signing up to a firm to make sure that they have the personality and style of working that’s right for you, as well as giving you the confidence that they’ll be able to provide the service and advice you need



Do they specialise in contractor tax?


It’s really important that you choose an accountant who specialises in working with contractors, as there will be a number of legislations and taxes that will only concern those who are contractors or freelancers.


Make sure that they are up-to-date and familiar with all issues that are relevant to you and your company, such as the IR35 legislation.



Are they qualified?


Make sure that your accountant is qualified and registered with a professional accountancy body.



Do they have a fixed monthly fee?


The majority of contractor accountants will work on a fixed monthly fee, however, don’t assume that this is the case with every one – you don’t want to find yourself presented with a surprise bill at the end of the year.


Check whether their package is inclusive of everything you require, such as tax returns, self-assessment, annual accounts and VAT returns.


Will you be given one point of contact and are you able to meet your accountant in person?

It’s best to find out whether you will have your own dedicated accountant, rather than being passed around a team of people, as it’s better to have one point of contact who knows you and your business well.


Although most people will only end up meeting with their accountant a handful of times, check whether you are able to meet with yours if you needed to and whether you’re only limited to a certain number of times a year.


It’s also worth finding out if there are any restrictions on when you can contact the accountancy firm.




By Contractor Hub, Apr 6 2016 04:00AM

As a contractor, you may be unsure on whether or not it is possible to take out a mortgage, and although some may find it a difficult process, it’s certainly not impossible.


As every contractor knows there are of course some risks associated with being self-employed, with the top one being regular income. This could put some lenders off due to the increased possibility that payments might not be made.


However, in order to be successful in taking out a mortgage, you will need to ensure that you take the right route by going to a lender who understands the contracting world.


There are different types of contractors, and as someone working through a limited company you may leave profits within the business, which could result in your combined salary and dividends looking like a low figure – something which could very well put lenders (who aren’t clued up on contractors) off.


Ultimately, you will need approximately a year’s worth of income details, such as wage slips, accounts and dividends information, to be considered for an application. Your chances of obtaining a mortgage will of course increase if you are able to provide two to three year’s of accounts, as this will mean that more lenders will be accessible to you.


As long as you can prove that you earn a steady income and that if you do pay yourself a smaller salary, there will still be retained profits within the company that can be used, it shouldn’t be an issue to get approval on a mortgage.


When looking for a lender, do your research and choose one that is a specialist who has approved contractors for mortgages.



Saving for a deposit


For those looking to buy their first home, they may be interested to hear about the new Lifetime ISA that will be launched from April 2017.


You will be able to save up to £4,000 each year with the money you accumulate being for the use of either buying your first home or keeping until you reach 60 for retirement.


The added incentive for this ISA account is that once you’ve opened the account (which is available to those aged between 18-40), any savings you have put into it before your 50th birthday, will be topped up by 25% by the government.


The Lifetime ISA can be used towards a deposit on a first home worth up to £450,000 and the accounts are limited to one per person, as opposed to one per home, which means that two first time buyers can both receive a bonus when buying a home together.


By Contractor Hub, Mar 30 2016 09:28AM

From 6th April 2016, the introduction of the new Personal Savings Allowance will mean that basic rate taxpayers will be able to earn up to £1,000 in savings income tax-free, and higher rate taxpayers can earn up to £500.


This means that most people will no longer pay tax on savings interest and bank and building societies will stop deducting tax from your account interest.


For those who already receive interest without tax being taken off, they won’t need to inform their bank or building society that they qualify for tax-free interest any more.


What counts as savings income?

As mentioned previously, banks and building society accounts counts as a savings income.


As does:


• Accounts with providers like credit unions or National Savings and Investments

• Interest Distributions (but not dividend distributions) from authorised unit trusts, open ended investment companies and investment trusts

• Income from government or company bonds

• Most types of purchased life annuity payments


It’s worth noting that any interest gained from an ISA won’t count towards your Personal Allowance because this type of account is already tax-free.



How much will my Personal Savings Allowance be?


The amount of your Personal Savings Allowance will all depend on your adjusted net income.


The government have provided a table showing the allowance for those on a basic, higher and additional rate:


Tax rate Income band (adjustable net income)

Basic (20%) Up to £43,000

Higher (40%) £43,001 - £150,000

Additional (45%) Over £150,000


Tax rate Personal Savings Allowance

Basic (20%) Up to £1,000 in savings income is tax-free

Higher (40%) Up to £500 in savings is tax-free

Additional (45%) No Personal Savings Allowance


Basic rate examples:


• You earn £20,000 a year and get £250 in account interest – you won’t pay any tax on your interest, because it is less than your £1,000 Personal Savings Allowance.

• You earn £20,000 a year and get £1,500 in account interest – you won’t pay tax on your interest up to £1,000, however, you will need to pay basic rate tax at 20% on the £500 interest over your Personal Allowance.


Higher rate examples:


• You earn £60,000 a year and get £250 in account interest – you won’t pay tax on your interest, as it is less than your £500 Personal Savings Allowance.

• You earn £60,000 a year and get £1,100 in account interest – you won’t pay tax on your interest up to £50, however, you will need to pay higher rate tax at 40% on the £600 interest over your Personal Savings Allowance.



How do I apply?


You won’t need to apply in order to claim you Personal Savings Allowance, this will come into affect as from 6th April.


If you owe any tax on your savings income HMRC will automatically collect this by changing your tax code and your bank or building society will give the information that they need to do this.




By Contractor Hub, Mar 23 2016 03:00AM

With the eagerly anticipated Budget 2016 having been announced on Wednesday 16th March by the Chancellor, we take a look at some of the key points discussed that will affect the UK’s contracting sector.



Class 2 National Insurance Contributions


At the moment, those who are self-employed pay two different types of National Insurance Contributions – Class 2 and Class 4.


Contractors pay Class 2 contributions if they take home £5,965 or more a year and this figures equates to £2.80 per week. Class 4 is paid by those earning £8,060 or more annually.


During the Budget it was announced that as from April 2018, Class 2 will be scrapped – part of this National Insurance goes towards building a State Pension, however, Class 4 will see some changes that’ll include the benefits that came with Class 2.



Personal Allowance


As expected, the Personal Allowance rate will increase. Currently, the amount of income you can earn before you start paying Income Tax is £10,600, however, this is set to rise to £11,000 this April, and then to £11,600 in April 2017.



Higher rate threshold


Those who pay the higher rate threshold of Income Tax will be interested to learn that this rate will now be increasing from £42,385 to £43,000 in 2016. This will increase further to £45,000 in 2017.



Lifetime ISA


A new type of ISA will be launched from April 2017, one that has been called a Lifetime ISA.


The purpose of this is to aid people in saving towards either a retirement fund (to use after you are 60) or to buy a first home – with the help of the government too.


Any adult under 40 will be able to open a Lifetime ISA account and up to £4,000 can be saved per year with the government topping up your savings by 25%.



ISA’s


Many people choose to invest their money into an ISA, as it is a more tax efficient method compared to a standard savings account.


Currently, you are able to invest as much as £15,240 into an ISA annually, however, as from April 2017 this figure will increase to £20,000.



New tax-free allowances


For those who sell goods, provide services or rent out part of their property for storage, they’ll be interested to learn that there will now be a £1,000 tax free allowance for this type of income.


So, for those who earn up to £1,000 from things like selling goods that they’ve made, or those who rent out part of their property, such as a driveway, garage of loft – they will no longer need to pay tax on that first £1,000.



Corporation Tax


All limited company contractors will need to pay Corporation Tax on its taxable profits – this is basically any money that your company makes from doing business, investing and selling assets for more than they cost.


Businesses will benefit from the main rate being cut once again from 20% to 17% in 2020.



Fuel duty


For contractors who find they travel a lot for business, they will be pleased to learn that fuel duty will be frozen once again. By the end of 2016 – 17, this will be the sixth consecutive year that fuel duty has been frozen and it has been estimated that this will save the typical motorist around £75 per year.






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