Contractors, happy new tax year 2019/20

With the April 6th start of a new financial year come new financial rules, and every good financial adviser should now be helping their clients to use all available allowances, as once they’re gone, they’re gone forever, writes Duncan Craze, senior financial planner at Contractor Wealth.

The following are some of the changes now in force as part of the new financial year 2019/20, which contractors keen to make their money go further should be aware of:

• Higher rate tax band has increased to £50,000, meaning you can draw more dividends at the basic 7.5% tax rate.

• The personal allowance has increased to £12,500, offering you the ability to draw more of a tax-free salary, should you want to.

• There is an increase in the Capital Gains Tax allowance to £12,000, which will help gains on taxable disposals become more tax-efficient, which could apply if offloading a buy-to-let property.

Beyond these three, the chancellor Philip Hammond has introduced a number of additional changes to be aware of and thankfully, some of them, contractors are going to able to make the most of. That’s as opposed to other changes under his watch, like IR35 reform.

Pensions

• You still have up to a £40,000 per annum allowance, which when used in conjunction with a ‘Ltd’ Company can provide up to £7,600 Corporation Tax relief. This is very important to consider /make use of, before further IR35 reform kicks in next year from April.
• There is the option of ‘carry forward’ for some nest-egg builders, so the amount you can contribute could well be higher.
• Pensions are still a completely tax-free way to remove cash from your company.

ISAs

• The £20,000 annual allowance for ISAs still applies (the only ISA allowance to be increasing this tax year is the Junior ISA, up to £4,368). So it’s still worth considering using some of your personal funds to get them in to a tax-efficient wrapper. You might even market link them in a Stocks and Shares ISA to give greater growth potential.

IHT

• The residential nil rate bank is increasing to £150,000. This will help our contractor clients with legacy planning and can be used well when you consider that pensions can also be held in trust and outside of your estate.

As important as they are, don’t limit your financial planning to the above. There are, of course, other areas to consider, such as how your business is run and managed, additional to further investments that can be used to help mitigate tax, such as Venture Capital Trusts. With the upcoming uncertainty around private sector IR35 reform and the financial impact it will have on contractors, it’s best to start making the most of your allowances while you can. Happy New Tax Year 2019/20!