Limited company contractors face tax hike from dividend changes

In yesterday’s budget the Chancellor began his speech with praise for the UK’s self-employed, whom he referred to as “the lifeblood of our economy”. Unfortunately yesterdays announcements failed to reflect that sentiment.

The big news for limited company contractors is that the tax-free dividend allowance is set to be cut by more than a half from £5,000 to £2,000 from April 2018. This will mean a tax increase of £225 per year for limited company contractors.

Prior to the announcement, the Chancellor had stressed the need to address rising incorporation, claiming the dividend allowance had increased the tax advantages of setting up a company.

KPP believe the decision to further cut the remaining tax advantages available to the UK’s self-employed couldn’t come at a much worse time The amount that the contingent workforce contributes to the economy is growing at a rapid rate, so it is indeed strange to us why the Government would want to stifle that.

Some good news perhaps ?

The reduction in the tax free dividend allowance is almost the lesser evil given that the extension of the off payroll rules to the private sector was on the cards. 

Although the reduction in take home pay for limited company contractors from April 2018 is bad news, it could have a silver lining in that if enough tax is raised by HMRC it may remove the need to move the IR35 changes in the public sector into the private one. 

We should also bear in mind the reduction in corporation tax to 17% by 2020 leaving more funds available for take home pay. 

If you would like any other information on any of the above please contact us on 0141 345 2335. 

Leave a Reply

Your email address will not be published. Required fields are marked *

What our clients say...

Thank you to KPP and all your staff that deal with Natgem but especially yourself, Jane & Danielle and ask that you pass my appreciation and thanks on to them. In these difficult times it has been a great relief to know I only need to lift the phone and if I can’t get an answer straight away someone will get back to me. This has taken a lot of worries from myself while looking for answers and that is down to yourself and the great team you have backing you up. So once again from myself a massive THANK YOU.

Stephen Drummond, Natgen LTD