We like to keep our clients informed of all updates and as this week was the Autumn Statement we thought we could share some of the salient features with you:
– Personal allowance from 6/4/15 is now £10,600 instead of £10,500 as announced before. What does this mean to contractors?
For those who are using an umbrella service or operating a limited company with a deemed salary (inside IR35), this simply means that the first £10,600 will be income tax free as compared to £10,000 this year. This is an instant saving of £120 for those with an annual salary above their personal allowance.
The tax benefit could be more for contractors that are operating under a limited company which has a genuine B2B relationship with their end clients (outside of IR35). This is because not only this salary of £10,600 is exempt from income tax, it is also a business expense that is deductible for Corporation Tax purposes. Therefore a contractor will be better off even after considering the additional employee’s and employer’s national insurance attracted above one’s primary and secondary NI threshold.
– Higher rate threshold increase to £42,385 from £41,865 from 6/4/15:
For umbrella users and limited companies with a deemed salary, this means that an additional £520 will fall within the basic tax rate band; hence a saving of £104 if one’s salary is over the higher rate threshold.
For contractors that are outside of IR35, this means they can withdraw an additional £468 worth of net dividend under the basic rate band which has an effective tax rate of 0% and saved £117 that would have been paid under 2014/15 threshold.
The employer’s national insurance tax relief of up to £2,000 for small business, will continue into tax year 2015/16.
Stamp Duty Changes:
From 4/12/14 onward, Stamp duty will be no longer be on a ‘slab’ system but with progressive tax rate in line with the value of the property.
Although the new system will be saving money for most property buyers, the benefit stops when the value of the property exceeds £937,500 as the tax rate jumps from 5% to 10% (a 100% increase!) for property value over £925,000.
Therefore, with higher value properties, the system can be very costly. For example, for a £1.5 million property, the new SDLT will be £93,750 instead of £75,000, a staggering increase of £18,750!
However, it is not all doom and gloom for investors as corporate bodies such as companies and collective investment schemes that buy residential dwelling costing more than £500k , can now pay SDLT under the new system provided the property is used for the following purposes:
a property rental business
a property development or resale trade
providing admission to visitors on a commercial basis
If the property is not being used for the above purposes, then the corporate body will continue to pay 15% SDLT charge on the entire value of the property.
Investors should also be aware that If 6 or more properties form part of a single transaction the rules, rates and thresholds for non-residential properties apply. The amounts paid for all the properties in the transaction must be added together in order to establish the rate of tax payable.
The new ISA threshold will be increasing to £15,240 from 6/4/2015.
A Spouse will now be able to inherit their husband’s / wife’s ISA tax free upon their death.
The unpopular 55% ‘death tax’ has been abolished. Tax free annuities for the spouse of people who die under 75 and all beneficiaries will only have to pay their marginal income tax rate.
The above information is a snap shot of what we think is most relevant to professional contractors and freelancers. This is not a complete summary of the 2014 Autumn Statement. Figures and calculations included in this are subject to any change in the law or your circumstances. Our information is for reference only. K&B Accountancy Group will accept no responsibility if you act on or rely upon this article.