So, the attractions of working through a limited company – already not great because of the paperwork, insurance and expense involved – are now considerably reduced.
To generate investment into small companies, the starting rate of corporation tax had for some time been zero per cent. However, the Treasury considered that the zero-rated allowance meant small business owners were not paying their fair share of tax, so the 2004 Budget introduced a starting rate of 19%.
IR591 is the label used to describe the Finance Act 2004, Part 3, Chapter 1 Section 26, which introduced that higher rate of starting tax of 19%. The result is a larger tax burden for all owners of small companies.
In other words, if you work in the contracting sector and use your own personal service limited company, you will pay more tax. In addition, depending on how you work and whether your company is jointly owned with a spouse or close family member, you could also face the implications of IR35 and/or S660A.
As a contractor you do have an option that completely removes the relevance of IR35, IR56, IR591 and S660A - working through an umbrella like Tarpon. In addition, with Tarpon you gain all the advantages of working through a full-service employment benefits company.
To speak to one of our tax experts call 0845 643 1580.