New tax year brings changes for businesses and contractors

THE 2016/17 tax year will mark a new era for public sector contractors and freelancers, as revised government rules come into force.

Experts at Regulatory Accounting, part of the Swindon-based RFS group of companies, believe the changes affecting public sector contractors from April 6 could have an impact on the local and national economy.

Richard Mathews, group finance director with RFS and Regulatory Accounting’s managing director, said there were changes coming in affecting VAT and the way freelancers and contractors draw their income.

“Many freelancers or contractors work through companies and pay themselves a dividend, which is a very tax efficient method,” he said. “The changes mean they may have to take a salary instead. At the same time, changes to the VAT flat rate scheme may be less favourable to some contractors. Combined, these measures will result in a lower income, and we anticipate contractors’ fees could rise which could have an impact on the public sectors they work in.

“Alternatively contractors will simply work elsewhere thus depriving the public sector access to these skills, in turn that would mean public bodies paying higher prices to attract others to undertake the work or simply they fail to hit their performance targets due to labour shortages.

“There is also general confusion about which types of work and which contractors will be affected. The new HMRC IR35 tool is heavily loaded in favour of HMRC and is unlikely to become the ‘industry accepted’ test for contractors that the government want it to be. ”

The end of the tax year often has implications for businesses and generally is a time for checking deadlines, especially for employers who should be looking at reconciling information on employees’ salaries and expenses, which need to be submitted to HMRC by May & early July.

April 6 also marks the end of many salary sacrifice schemes. From the new tax year, the government is curbing many of these in areas such as health screening checks, company cars and mobile contracts. But most existing schemes stay tax-free until April 2018 - those relating to cars, accommodation or school fees until April 2021 – so now is the time to join or set one up.

Good news for business in the new tax year is that the Annual Investment Allowance remains at £200,000 for inward investment and for companies, Corporation Tax is dropping by 1 per cent to 19 per cent.

And the new initiative to digitalise the taxation system - Making Tax Digital – has been deferred until April 2018 for businesses with turnover under the VAT threshold. It had been due to affect all sole traders and landlords from this April.

Finally, auto enrolment – also known as workplace pensions – is now drawing in all businesses. Any that haven’t yet set up pension schemes for staff will almost certainly be approaching their staging date – so now is the time to act.

Regulatory Accounting, is a subsidiary of the Swindon-based RFS Group – a leading FT100 regulatory and compliance consultancy (rfs.co.uk)