Looking at the Budget overall there was little immediate impact for contractors, which is probably as good as we could have hoped for in the current financial climate. A postponement in petrol duty rises is good news for all and surprisingly beer tax is not going up but down - I'll drink to that.
For umbrella contractors the income tax threshold increases to £10,000 in April next year which is helpful although the higher rate threshold decreases to £41,865 which effectively negates any benefit for those earning over £41,865.
For contractors with their own limited companies there were bits of good news:
- There will be a reduction in your companies NI bill if you are paying yourself a salary - the first £2,000 is to be taken off all employers' NI bills
- IR35 remains unchanged - there will be provisions to make it clear that if you hold an 'office' with a client e.g finance director you will be caught by IR35 but this is arguably the case today anyway
- The limit before directors' loans become taxable is increased to £10,000 (from (£5,000) which should help with some of the admin around disclosing loans
Contractors using offshore schemes should be concerned. The Chancellor is investing £1bn in HMRC to tackle tax avoidance and made it clear that HMRC will focus its efforts on 'Offshore Intermediaries'. It is probably the right time for contractors using such schemes to look for alternative solutions before they end up on HMRC's radar. Recruitment agencies will no doubt be reviewing their PSLs and may refuse to pay such intermediaries for fear of becoming embroiled in an investigation.
You can download the complete budget report here, alternatively here are the headlines:
- Income tax threshold to be raised to £10,000 from April 2014. - However the higher rate threshold for 2014/15 will decrease to £41,865.
- The first £2,000 to be taken off all employers' National Insurance bill - As an encouragement for employers to create more jobs the Government is introducing an allowance for all businesses to be offset against their employer NICs bill from April 2014. Full details as to how it works are not yet available.
- Small amendment to the existing IR35 provisions - Of interest to contractors is the Government's change to these provisions to equalise the tax and NICs treatment of office holders, and put beyond doubt that the legislation applies to office holders for tax purposes.
- Exemption limit on employer-provided beneficial loans to be increased in 2014 from £5000 to £10,000 - Employees who receive interest- free loans from their employer for non-qualifying purposes are taxable on the benefit they enjoy if the amount of the loan exceeds £5,000. This limit is being increased to £10,000. Contractor directors of PSCs may find this advantageous.
- Annual Investment Allowance limit increased - Investment in qualifying plant and machinery for business purposes can receive a 100% tax deduction. The limit for the relief is being lifted from £25,000 to £250,000 with effect from January 2013 for 2 years.
- Change in VAT threshold - From 1 April 2013 the VAT registration threshold will be increased from £77,000 to £79,000 and the deregistration threshold from £75,000 to £77,000.
- Paying personal tax liabilities through your Tax Code - Consultations are to take place on reforming HMRC's ability to collect debts via a tax debtor's tax code, known as 'Coding Out'. The current limit of £3,000 per year for all tax debtors will be replaced with a graduated scale introducing higher limits for those with higher earnings - or up to £17,000 limit for those earning £90,000 or more. This approach could make it easier to pay your tax liabilities over a period of time.
- Capital Gains Tax Annual Exempt Amount -This will rise to £11,000 for the 2014/15 Tax Year.
- Van Benefit frozen -For contractors who have the use of a company van for private purposes the Government has frozen the Van Benefit Charge at £3,000 in 2013/14 and will increase it by the RPI only from April 2014.
- Tackling Tax Avoidance & Evasion -The Government is investing almost £1 billion in HM Revenue and Customs over this Parliament, in an unprecedented clampdown on avoidance and evasion. This investment is enabling HMRC to secure £22 billion a year in compliance revenues by the end of 2014-15 -almost 70 per cent more than 2010-11. HMRC is getting new legal powers to tackle tax evaders and the promoters and users of avoidance schemes. Offshore employment intermediaries will be amongst the first to feel the force of these new measures.