Graham Shove, Specialist Accountant at Comptex Ltd discusses how the Budget and other recent pieces of legislation could potentially affect interim managers.
Budget 2010
The Chancellor has announced a package of tax changes which could potentially hit interim managers quite hard unless certain preparations are put in place.
- A new 50% tax rate on income above £150,000 takes effect from 6 April 2010.
- Restrictions on tax relief on pension contributions for incomes in excess of £150,000 where gross income incorporates all pension contributions, with effect from 6 April 2011. This is subject to an income floor of £130,000.
- National insurance contributions, both employees and employers, are set to rise by 1% from 6 April 2011 (except for those with incomes below £20,000). These increases will particularly effect those working under IR35
- A staged removal of personal allowances from incomes over £100,000 a year.
- Now add to this the freezing of personal allowances, but not inflation, and the staged increase in fuel duty (not to mention if cider happens to be your tipple!) and you might sense a large amount of extra taxation coming your way.
No complacency
Do not let this extra tax burden happen to you without taking decisive action. Talk to your financial advisor because there are many ways that you can lessen your tax bill. If you do not have a tax adviser, consider going to someone like City Capital Analysis which is fully regulated by the FSA and which has a high reputation for saving taxation (legally!) www.city-cap.co.uk
IR35
Yet again in the news, but this time for the wrong reason as far as HMRC is concerned. IR35 was introduced in April 2000 to stop directors paying themselves minimum salary and the rest of their income as dividends. It happened at a time when IT managers were leaving employment in droves in order to set up as independents tackling the Millennium bug. The Revenue thought that it was about to lose a huge amount of income and rapidly introduced hastily drawn up legislation on the back of 60 year old employment status laws, resulting in a huge mess in which even its own officers floundered. The Red Book stated that it expected to earn at least £900m in additional taxation each year. The Professional Contractors Group in a recent query under the Freedom of Information Act, has revealed that HMRC has declared an pitiful income of only £9.2M for the years between 2002/03 and 2007/08, in other words about £1.5 M per annum.
PAYE umbrella companies
Sad to see the demise of the Albany Group, not for the loss of the company itself, but because of the huge amount of money lost by individuals. The company blamed late payment by clients but, given that the individuals were not paid until the client paid the umbrella company, there does seem to be many important questions to be answered. This has led to many interim providers refusing to work with these PAYE umbrella companies.