The Chancellor in his March 2016 Budget has moved to tighten the net on interims mistakenly regarding it as disguised employment, rather than the highly flexible management resource that it is.
The main changes are:
Working in the Public Sector
From April 2017, the government will make public sector bodies and agencies responsible for operating the tax rules that apply to contractors working through limited companies in the public sector. In practice this means that the public sector bodies and agencies will take the safe route and deduct employees NIC and PAYE from fees billed. The rules will remain unchanged, at present, for those working in the private sector. It is not at all clear at present if all interim managers will be caught by this but the consensus seems to be that they will be.
Travel and subsistence
Tax relief will no longer be available for home to work journeys, the take home pay of the workers employed by intermediaries will reduce. The intermediary will also be impacted as it would have made savings in relation to employer’s NIC on the travel expenses paid. The proposals will also impact those personal service companies which supply the services of an individual to an end user if the individual is subject to supervision, direction or control.
Although independents including interim managers have already paid Corporation tax on their profits in addition from 2016/17, individuals will have a dividend allowance of £5,000 per year, but suffer higher rates of tax on dividends that don’t fall within this allowance.
The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
It is a pity that the Government has made additional legislation which can only add further complexity.