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| Tax rates and allowances:
www.hmrc.gov.uk/rates/index.htm |
Pensions
Construction industry
Limited companies
Going limited
Directors
Pensions:
Have you started to make pension contributions recently? Or are
you nearing retirement age and you've been making contributions
for years?
Whatever your situation, the rules relating to Pensions are due
to change in April 2006. In some ways the rules are simpler - in
other ways they are not.
Action point: During the next few months we would urge
everyone who is making contributions to a pensions scheme to
obtain professional advice about there own circumstances and the
possible impact of the changes that are due to take place
next April.
We are not authorised to conduct Investment advice but can refer
you to Independent Financial Advisors who can assist you.
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Construction Industry:
There are two things to think about in the immediate future.
Firstly, from April 2006, the CIS system as we know it will come
to an end. If you are a contractor seeking to engage a
subcontractor - you will have to work out some sort of job
description and then contact the Revenue (HMRC) and ask them
whether the job is an employed or self-employed position. Jobs
will no longer be treated as self-employed because both
contractor and subcontractor want them to be. The final details
are still to be issued.
Secondly, the Revenue have recently issued a letter to a
number of contractors advising them to review their use of
subcontractors and take steps to ensure that they are employing
individuals in the correct manner. The questions is: does the
nature of the job that is being done qualify as a self-employed
engagement. The letter implies that they (the Revenue) have
doubts about the status of some of the subcontractors. There is
no statutory definition of either "employed" or "self-employed".
Similar letters have been written to a number of subcontractors.
Action point: Contractors need to review their use of
subcontractors to ensure that their status can be satisfactorily
defended - or changes should be made to ensure that your house
is kept in order. We have a list of bullet points that you might
want to consider. Contact us for details.
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Limited companies:In tax terms, saving can be made if
you trade though a limited company. However, you will need to
check and see if you are caught by the piece of legislation
known as "IR35". This piece of legislation is designed to
reduce the tax advantages of limited companies where the worker
is working in circumstances that would otherwise be termed an
employment. In normal circumstances the limited company is paid
by invoice without deduction of any taxes - but if the terms of
the engagement are caught by "IR35" then the income of the
company is effectively treated as though it were the salary of
the worker.
Another piece of legislation that has recently gone thorough a
test case in the courts is generally known as section 660.
In simple terms, this applies to companies where both Husband
and Wife are shareholders, but the bulk of the income generating
work is carried out by one individual. Traditionally, salaries
have been topped up with dividends allocated to each
shareholder. As a result of using section 660, the Revenue are
arguing that the dividends should be treated as part of the
taxable income of the individual doing the work.
If you are not caught by IR35 or section 660, then trading
through a limited company does have its advantages.
Action point: Review the circumstances in which you
are trading. Does IR35 or section 660 apply to your situation?
Take advice relevant to your situation.
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| Going limited: New limited companies need to tell
the Revenue that they are trading. This must be done within
three months of the commencement of trade. Failure to do so will
result in a £100 penalty.
If there is only one director / shareholder, you do not need to
have Employer's liability insurance.
If you are contemplating transferring your business from a
sole tradership to a limited company, you need to take advice
since a number of processes will need to be put into effect, and
the tax effect needs to be considered. Action point Take
advice.
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Directors:
Remember that whenever you take money out of your limited
company there is a tax effect. Contrary to popular thought, when
a company earns money, it does not belong to the director
personally. It is company money - and for an individual to get
there hands on some, they must treat the money they take as a
salary or a dividend. If they don't then an overdrawn loan
account will be created and the overdrawn account will be taxed
for corporation tax purposes.
Action point: Plan it before you take it!
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