Summer Budget changes hit one person companies
The Summer Budget made a number of announcements that impact on one-person limited companies. In particular, IR35 and dividends saw some significant developments.
IR35, the intermediaries legislation which has been a troublesome issue for limited company contractors across the country for almost two decades, will be made ‘more effective’. At this stage, it is unclear exactly how the Government plan to achieve this.
The employment allowance
The employment allowance, a very successful business support scheme, will be withdrawn entirely for contractors.
A consultation into how contractors claim expenses has been launched with the aim of removing their ability to claim back legitimate business costs.
The way dividends are taxed is changing dramatically. The result will be the average contractor ending up paying thousands of pounds more in tax every year.
The way the new dividend tax has been structured will lead to illogical disparities in taxation.
For example, a contractor with profits of £48,000 per year will see around £1,500 added to their tax bill, but if they increase their profits to £58,000, the extra tax burden drops to less than one tenth – about £140
The asymmetry is due to the new dividend allowance and how it interacts with the existing personal allowance and basic rate band.