Government reforms of off-payroll working rules (known as IR35) are forcing many contractors operating personal service companies to review their options when it comes to covering the most basic need of all – protection*.
As an experienced financial adviser in the Aberdeen and Aberdeenshire area, Steven
McKnight has encountered many clients, working for themselves in the oil industry, who tend to write themselves a poor contract.
“Many of my clients are so busy that they don’t look after themselves,” says Steven.
Health check
For time-short limited company contractors, an annual medical is an excellent way of
checking on health, when even making a doctor’s appointment for a minor illness tends to be avoided.
Life assurance
Protection through a Relevant Life Plan is a tax-efficient way to provide life assurance and can include serious illness cover. The plan itself is established and paid for by the company on the life of the director. Furthermore, any benefits from the plan are paid to a discretionary trust.
The beneficiaries of the trust will be your family members and dependants. A deductible business expense, this plan can provide up to 30 x salary, including dividends, as life cover.
With contributions to these plans paid for by the company, they will not be treated as a benefit in kind and will not be taxable on you – as the life assured for whom the plan has been established.
Income protection
Retaining 12 months trading income in your business account is also prudent for any
unforeseen time off you may need to take at short notice, or indeed a loss of contract.
When considering protecting your income for the longer term too, contracts with deferral periods of less than a year can be very expensive, so this valuable benefit can
be much more affordable as part of your overall financial planning.
Trading regulations
There are also new rules contractors should be aware of around liquidating limited companies.
You are unable to close the company and trade again in the same capacity while still receiving 10% entrepreneurs’ relief. If you operate as a limited company, you are in the fortunate position of extracting profits from your business to fund your retirement.
In conclusion
We believe you should plan to protect yourself and your family in the most tax-efficient
way possible.
To do so, you need an adviser who understands the gaps you face as a contractor, rather than a company employee, and will work with you to ensure you are not caught short, should the unthinkable happen. The levels and bases of taxation, and reliefs from
taxation, can change at any time and are generally dependent on individual circumstances.
*Source: www.gov.uk, April 2019
