71% of limited company IT contractors expect to pay more tax following Budget

Half plan to change their company structure
A third intend to move to full time employment
10% plan to work overseas

Nearly three quarters (71%) of limited company IT contractors expect to be paying more tax as a result of the Budget according to a survey by contractor specialist giant group plc.

The Chancellor announced in the Budget that from April 1 small limited companies would pay corporation tax at 19% on all profits paid as dividends. All limited company IT contractors with profits up to 50,000 where the contractor receives payment in the form of dividends will be hit by this measure.

Comments Matthew Brown, managing director of giant group: This tax hike could hit many limited company IT contractors hard. Profits are only just starting to grow again after a long period of stagnation in the contracting market so this new tax is unfortunate timing.

Limited company contractors were asked whether the tax increase on dividends would force them to reconsider operating via their own limited company. More than half (54%) said yes.

Says Matthew Brown; You would expect this new measure to be a disincentive to anyone considering building a business but for so many IT contractors to be thinking of changing how they operate shows how problematic this tax grab is.

Limited company contractors that answered ëyesí when asked whether they would reconsider operating via their own limited company were then asked what their preferred manner of working would be if they did. Over half (53%) said they would be most likely to join an umbrella* or managed limited composite** company, more than a third (37%) said they would seek to move into full time employment and 11% said they now planned to work overseas.

Matthew Brown believes that following the Budget the current burgeoning trend of operating via umbrella and composite companies will emerge as the clear working structure of choice for IT contractors.

The days of IT contractors operating via their own limited company could be numbered. There are now no significant tax advantages to running your own company, says Matthew Brown.

The services offered by umbrella and composite companies are growing in sophistication all the time. Contractors that work through them have more flexibility than contractors operating via their own limited company and enjoy many more benefits without any of the administrative burdens.

According to giant group, the benefits to contractors of working through an umbrella or composite company compared to operating their own limited company include minimal administration, only incurring costs while actually working, generous expenses and allowances and free contract reviews, IR35, professional indemnity and other insurances.

Commenting on the 37% of limited company contractors that said they intended to look for a permanent job Matthew Brown said: If there are fewer contractors overall that could be damaging for UK plc. It will mean a less a flexible allocation of skills across the economy which could harm our long term competitiveness.

* A contractor working through a third party managed umbrella company receives salary remuneration but does not own shares in that company and does not receive dividend remuneration
** A contractor working through a third party managed composite company owns shares in that company and receives dividend and salary remuneration