Win or lose, you’re still a Rat!
With the dark nights and winter weather upon us, combined with the imminent introduction of tax hikes and the threat of increased HMRC enquiries, you could be forgiven for thinking, as you await the delayed 7.06, if Contracting is still the game for you.
Well, all is not lost, since the Chancellors full frontal assault on the contract labour market several months back, our Canary Wharf based tax advisors and chartered accountants have been racking their brains in an attempt to mitigate the blows heading your way.
For most, the changes coming into effect from April 2016 will bring with them increased personal tax liabilities of around £1,850, however for Directors taking dividends over the basic rate threshold the effective tax rate will be 52.50% or even as much as 58.10% on every pound you extract, ouch!
There is an alternative, if you have a fixed horizon on how long you intend to provide your services, whether that is one month, one year or even longer, then with the correct planning we are able to provide a profit extraction solution which will ultimatley reduce your overall effective tax rate to c.10%, and crucially, provide you with access to your funds throughout, essential in order for you to live.
Tax mitigation is not something that can be achieved retrospectively, if you are a contractor and want optimal results, then you need to be planning now. We have accountants and tax advisors in Canary Wharf and Brentwood able to provide a no obligation consultation, it’s free and it may save you thousands.
Be proactive in managing your finances, contact us today to discuss your specific situation and discover how we can make a real difference to the funds at your disposal.
Dividend Changes Explained:
From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance, the Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
The allowance is available to anyone who has dividend income.
Headline rates of dividend tax are also changing.
Dividends are only payable from Profit, which you would have paid 20% Corporation Tax on within your company. When you take cash from your company you’ll pay tax on any dividends you receive over £5,000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band