8 immediate risks for limited companies after the Autumn statement 2016

We’re sure your familiar with the advice given by pretty much all accountants and some recruitment agencies (not to mention friends and family).

“Create a limited company, it’s so much better than an umbrella and you take home more money”

2016 being the year of surprises (Brexit and the US Presidential election being just two), that would be the case, especially since umbrella expenses were terminated on 6 April. The Government, not feeling that their work is quite yet done, have announced major changes in the Autumn Statement and it’s not great news. We’re going to describe 8 reasons why using a limited company in the private or public sector will mean much less money in your pocket.

1. Increased risk of digital tax chaos
The plan to make ‘Tax Digital’ is due to start next year. Contractors will be required to complete their company tax returns every quarter, rather than once a year. Contractors will also be expected to complete their tax assessments digitally…all on their yet-to-be-tested online software, so we don’t need to outline all the reasons why this could go wrong.

2. Increased risk of an incorrect IR35 status
The onus of IR35 liability moving from the PSC to the ‘paying agents’ (i.e. the agencies) so expect more scrutiny and “vested” interest by your agency to see if IR35 applies to you, and believe us when we say that agencies will do anything to reduce their own notional liabilities.

This defensive stance was demonstrated by the embrace of the umbrella contractor SDC rule (expenses) which effectively reduced umbrella pay, but also removed potential agency liability. The workers never stood a chance.

3. Rising accountancy fees
With more time managing contractors accounts due to the increased demands of HMRC, you can expect to see your weekly accountancy fee increase dramatically. When viewed over a fiscal year, that cost starts to add up to quite a bit (though it’s still deductible, of course)!

4. And for good measure, more tax on distribution (from your limited)
Even when it’s over, it’s not quite over (when it comes to tax).
A great advantage of having a limited company is that you can make a distribution on winding up (which happens in the normal course of commercial events). A new targeted anti avoidance rule (TAAR) will mean that the distribution will be taxed as it were income (not capital) under various scenarios.

5. Your private information…made public
Don’t believe us? Type in the name of somebody you know who has their own limited company (maybe you). Thanks to Companies House Betas, you’ll be able to see a host of information that can be viewed by anyone who has access to the internet including registered address, profit, assets and charge holders.

Companies House Beta results are now showing on Google. First page too!

6. Even processing your reimbursable expenses costs money (and fees)
Invoicing for expenses (reimbursed to your company) may appear to be a bonus, or a contract negotiation “win”, but it has several negative effects in terms of your PSC.

It obviously adds to sales (and notional Corporation Tax liability) whilst it reduces the benefit of the Flat Rate Scheme, as it’s adding to your gross sales and the FRS VAT liability.

Which brings us nicely on to…

7. Flat Rate Scheme changed to a rate of 16.5%
That flat rate scheme that benefitted so many limited company contractors…gone. The applicable rate has now increased which means you’ll lose the small benefit from using FRV if you have little in the way of VAT inputs (costs).

8. Say goodbye to the 5% expenses allowance removed
More tinkering! The general allowance that was given to limited company owners due to the ‘admin’ involved in running their own business has been removed for public sector workers. Their reason is that there is now no administration burden on limited company owners anymore in determining their IR35 status.

…The limited company option for many contractors has been the ‘go-to’ option but with the recent changes announced, there aren’t many viable options left for a contractor to pick from, particularly those working anywhere near the public sector.

Mutual umbrella is fast becoming the way forward
We’re sure that you’re aware of how co-operatives and mutual organisations work (and have done for decades). Well, in short, they work in the best interests of their members, and not agencies, accountants and other margin slicers.
What could be better than the collective strength of a large number of forward looking and hardworking contractors (that’s you and your co-workers) that agree to participate in an employer/employee dividend pay-out (that’s a bonus), whilst making much more effective use of tax allowances?

Better buying power also means sharing in lower fees and lower insurance costs.

Get in touch to find out why mutual umbrella is the way forward for many in the contracting industry (both workers and clients), or use our handy instant pay calculator to see exactly how much better off you could be with us.

Purple Pay works with both the public and private sector, agency workers and those that contract directly with the end client.

The future is mutual, and that’s the immediate future.