Limited company contractors could once more be in the firing line with HMRC. According to accountancy firm Smith & Williamson, HMRC will be closely monitoring the use of dividend payments between now and the end of the tax year.
It is believed that many contractors will attempt to sidestep the new 50% higher rate tax by paying out the lion’s share of their company cash reserves before the 6th April 2010. Anyone considering this approach are however being advised to check that any dividend payments are in fact lawful by ensuring their company accounts are fully up to date.
HMRC is not concerned with umbrella company contractors and those that work PAYE in this instance since their income is taxed at source and subject to full national insurance contributions. In fact, now that the abolition of IR35 is such an unlikely prospect, the use of umbrella companies among contract workers is only set to increase in the 2010 / 2011 tax year.
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