New Tax Year Changes: What Contractors Need to Know
On 6th April, we rolled over into the new 2019/2020 tax year... And what a year it looks set to be! Believe it or not, this year’s changes are remarkably positive, and it’s possible that many IT contractors will financially benefit from amendments to the existing tax brackets. So, why is no one celebrating?
The problem, of course, is that the contracting industry is still very much under the grey cloud of IR35. However, while the IR35 tax regulation is certainly something that all contractors — and all businesses that utilise the skills of contractors — should continue to take into account, it’s also well worth taking a closer look at the 2019/2020 tax year changes which could help to counteract at least some of the doom and gloom of IR35. So what exactly has changed this year, and how could contractors benefit from it?
2019/2020 Tax Year Changes
Perhaps the most obvious change of note is the increase in tax free allowance from £11,850 to £12,500, meaning that contractors can draw more tax free salary should they wish to. The threshold for paying higher rate tax has also increased, so you’ll need to be earning at least £50,000 during the 2019/2020 tax year to pay this higher rate, up from £46,350 previously. And for all contractors with student loans to pay off, you’ll be pleased to hear that the threshold for repayments has risen from £18,330 for plan 1 loans to £18,935, and from £25,000 for plan 2 loans to £25,725, providing a small amount of additional financial relief.
In terms of dividends, things weren’t too great last year when the ‘nil band’ dividend value was reduced from £5000 to just £2000. While there hasn’t been any increase for the 2019/2020 tax year, there also haven’t been any additional reductions, which is one less thing for contractors to be concerned about.
And For Next Year...?
No contractor can forget about the planned extension of existing IR35 regulation that’s due to be rolled out next year, in April 2020 just in time for the 2020/2021 tax year. This extension, which will apply to contractors working within the private sector rather than exclusively within the public sector, is set to have a significant effect on contractor earnings. This is true not only for those who are found to be working inside IR3, or what the Government are referring to as ‘disguised workers’, but also for contractors working outside IR35 as a number of businesses have shown preference for hiring contractors through umbrella agencies (under the PAYE scheme) to off-load IR35 responsibilities.
For now, however, contractors can enjoy the financial benefits that have been introduced as part of the new 2019/2020 tax year, and can keep up-to-date with the latest IR35 news here at Contract Recruit, as we edge closer and closer to the introduction of the regulation across many more industries and sectors.