Latest legislation 2018: How will it impact you?

The world of contracting is ever changing. This week’s article discusses some of the changes to legislation that are occurring that contractors or owners of limited companies need to be aware of.

Drop in dividend tax allowance

A large proportion of contractors decide to take a small salary and the remainder via dividends as this is the most tax efficient manner, as dividends aren’t subject to National Insurance Contributions.

The way that dividends are taxed changed on 6^th April 2016. This change effectively saw a £5000 dividend tax allowance been introduced. On 6^th April 2018, another change will take place. The dividend tax allowance will drop from £5,000 to £2,000.

If you are a basic rate tax payer, that means you could be £225 worse off. A higher rate tax payer will be up to £975 worse off and an additional rate tax payer will be £1,143 worse off per year.

What you can do: The first thing you should do is sit down and review your tax planning with your accountant. If there are additional shareholders, they should be doing the same thing.

April brings new beginnings

6^th April sees the start of the new tax year, and with it new allowances and entitlements. We’ve put together a list of what you ought to be aware of:

• Personal allowance – increases from £11,500 to £11,850
• Lifetime allowance – for the tax year 2017/18 this was set at £1 million. This has been raised in line with inflation, giving you an extra £30,000 in pension benefits without incurring tax penalties.
• State pension – is increasing 3% in line with inflation. This represents an extra £191 for those who started drawing their pension before 6^th April 2015, or £250 for others.
• Council tax – if you’re a contractor who owns a rental property, if that property is left empty you could see your council tax bill double. Local councils now have the power to increase council tax premiums by 100% for properties that remain unoccupied for two years or more.
• Buy to let tax relief – landlords will only be able to deduct 50% of their mortgage interest payments against rental income.

Need some advice?

If you are concerned by the drop in the dividend allowance or are looking for clarification on any of the other points mentioned, give us a call on 01962 867550, and we’d be delighted to discuss them with you in further detail.