Tax and advisory firm Blick Rothenberg has warned freelancers in the UK to be careful not to ‘force themselves into higher tax rates’ when the National Insurance and dividend taxes increase on April 6th.
This applied to any freelance contractors who work through their own personal service companies (PSCs).
Robert Salter, a tax director from Blick Rothenberg said: “Freelance business owners should consider their overall business position and not just focus on the additional National Insurance or dividend tax rates which are due from April 6th onwards, when deciding what amounts they should be withdrawing from their business.”
He added: “Whilst there is a natural temptation for freelance contractors to pay themselves a bonus, or take additional dividends from the business, prior to 6th April, in some cases this could result in them facing additional income tax liabilities which exceed any saving in NICs, for example.”
He added that contractors should consider their overall income position and the wider finances of the business, instead of just focussing on the additional National Insurance Contributions (NICs), or dividend taxes, which will be payable from 6th April 2022 onwards.
He said: “A freelance business owner who presently takes out £50,000 per annum as their ‘standard drawings’ from their PSC, might be tempted to award themselves an extra dividend or bonus at the end of March to avoid the increased NIC and / or dividend tax liability.
“However, a payment of say £10000 could: result in the freelancer becoming liable to the 40% income tax band, if the drawings from the business were taken as a bonus or salary, on the majority of the additional sum withdrawn from the business. In this scenario, they could be increasing their overall tax costs by more than would be the case, if they simply waited and drew money from the business on their normal, monthly basis.”
