Pre-budget forecasts included cuts in welfare; longer Sunday trading hours; reduction in tax relief for pension contributions; continuing clampdown on tax avoidance; personal tax and inheritance tax threshold increases; fuel duty increases.. some of these have come to pass plus more besides!
For contractors here are some of the headlines which may affect you:
- Fuel duty is frozen for the remainder of 2015;
- The individual tax allowance for 2016/17 is to rise to £11,000 and the higher rate threshold will rise to £43,000;
- As expected, a consultation document has been released on the use of travel and subsistence by workers engaged through employment intermediaries, such as umbrella companies and personal service companies. The closing date for comments and feedback is 30th September 2015. We will provide further information on this as and when it develops.
- A discussion document is due shortly on how to improve the effectiveness of IR35. Tax avoidance in this area is said to cost over £400m a year. The government is keen to protect contractors genuinely outside IR35, but wishes to stamp out the unfairness of those acting as 'disguised employees.'
- A radical change to the way in which dividends are taxed will affect limited company contractors. The Dividend Tax Credit is being removed and replaced with a new tax-free Dividend Allowance of £5,000. From April 2016 dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers;
- For contractors who have bought and let property with a mortgage, interest relief set against the rents they receive will be restricted to the basic rate of tax. This is being phased in from April 2017. Also of importance to landlords letting furnished properties are changes to the allowance for wear and tear currently based on a percentage of the rental income being replaced by a new system based on actual costs incurred from April 2016;
- If you rent a room in your house the tax relief is increased from £4,250 to £7,500 also from the next tax year;
- Significant changes to the tax treatment of non-domiciled individuals come into play from April 2017 designed at bringing about a fairness of treatment for tax purposes for those who choose to live in the UK for a long time;
- The NICs Employment Allowance where the director is the sole employee will no longer be able to claim the Employment Allowance from April next year;
- A Government Green Paper considers proposals for radical changes to the pension saving system and the annual tax relief on pension contributions is to be limited to a minimum of £10,000 a year by the operation of a taper on the relief for those with incomes over £150,000 from April 2016;
- The rate of Corporation Tax on companies is to be reduced again to 19% in 2017 and 18% in 2020;
- A generous increase in Inheritance Tax threshold up to £1m from 2017 will enable more property to be passed to the family without suffering tax;
- Insurance Premium Tax increases to 9.5% from 1 November.
Of more general interest:
- Mr Osborne announced the introduction of a new compulsory National Living Wage of £9 per hour by 2020 and starting at £7.20 per hour from April 2016;
- Sweeping changes to the welfare system are being made in order to reduce the overall benefits budget. The Chancellor announced changes to Tax Credits, Universal Tax Credits, including the freezing of working age benefits, the withdrawal of housing benefit for certain young persons and payment of rents at a market rate for higher-income households in social housing;
- University maintenance grants for lower income students in England and Wales are to be scrapped from September 2016 and replaced by loans;
- Vehicle Excise duty is to be ring-fenced for a new Roads Fund to help improve the country’s road system. Look out for changes in 2017;
- Decisions on amending Sunday trading hours is being devolved to local councils and authorities;
- The Chancellor has promised to keep up the pressure on and yield from tax avoidance by increasing resources available to HMRC as well as providing them with new powers to combat aggressive tax planning
Further details on the budget report can be found here.