In the 2002 Budget, our good friend Mr Gordon Brown put up direct tax, sorry, National Insurance contributions, by 1%, in addition to introducing a new 1% tax to those above the upper earnings limit.
Well, what does this mean to contractors?
We have done the calculations that use the new figures from the 2002 budget together with the N.I. figures that will take effect in April 2003.
The result is that for those contractors NOT caught by IR35 there is very little change because they do not incur the N.I figures and can still pay a low salary and pay the rest as dividends. The net decrease in pay for these smart individuals is a negliable £7 a month.
However, for contractors caught by IR35, the story is a little different. For a contractor earning around the £50 per hour bracket, they can expect a net reduction in salary of around £100.
This, on it's own doesn't sound too bad, but when you consider that an IR35 caught contractor on £50 per hour will earn a net salary £1000 less than a non-caught contractor it is worth taking note.
What would you do with an extra £12k a year?!
To get a more detailed estimate based on your own earnings, use the IR35 Calculator in combination with the Budget Effect Calculator.