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. Contractors with profits up to £50,000 where the contractor receives dividends will be hit by this measure.
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.
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."
James Leckie, MD of contractor start-up site IT Contracting said: "In reality, assuming your contracts are not caught by IR35, limited companies remain the most tax efficient way of contracting, as dividends are not subject to National Insurance Contributions. The administration involved in running a company can be also minimised by using a specialist contractor accountant."