The theme of Chancellor George Osborne's Budget today was that of 'a Budget that puts the next generation first' to use the oft-repeated phrase in his speech.
Whether that means that there was anything in it which addressed the concerns and aspirations of this generation will doubtless be a matter of debate and opinion.
Changes that may affect contractors:
The Chancellor confirmed his intention to restrict the ability of agency and umbrella workers to get tax relief on travel and subsistence expenses. This change will take effect from 6 April 2016.
This could result in a reduction in take home pay for agency workers and umbrella workers who claim travel and subsistence expenses unless they can prove they are not under the "supervision, direction or control (SDC) of any person in relation to how they carry out their work."
The Chancellor's logic is that "this will bring the rules into line with those that apply to employees" although the reality is that there is no SDC test for other employees. He hopes to raise approximately £150m per year from this additional tax. PayStream has put together a checklist to complete for its current umbrella employees to determine whether SDC is present. Many of the employees claiming expenses have completed the checklist already.
We still await publication of the final legislation but do not expect any material changes from the drafts we have seen.
For PSCs the tax landscape is largely unchanged with IR35 remaining the test for whether dividends and expenses can be paid. It should be noted however that, from April 17 PSCs working in the public sector will be subject to further scrutiny with the government looking to make public sector bodies and agencies responsible for making sure that PSCs operate the tax rules properly. The rules will remain unchanged for those working in the private sector.
The Chancellor reconfirmed his commitment to deal with disguised remuneration schemes which would include loan arrangements and EBTs used to reduce tax. A package of measures will be included in the Finance Bill 2016
- Further Government savings will help to achieve a surplus, where more tax is raised than spent by 2019/20;
- The much talked about 'sugar tax' or levy on drinks with added sugar will come into force from April 2018 with the funds provided by it applied to increase the PE and sport options at schools;
- On the matter of schools the Chancellor affirmed the Government's intention that every school should be or is working towards being an academy by 2020;
- From April 2017 any adult under 40 will be able to open a new Lifetime ISA. Up to £4000 can be saved each year and savers will receive a 25% bonus from the Government on this money. All other ISA limits will also increase to £20,000 from that time;
- The tax Personal Allowance (the income you can earn before you start paying Income Tax) will increase to £11,500 in April 2017 and the threshold of higher rate tax will rise to £45,000 at the same time;
- If you are someone who sells goods or services online, has a small income from occasional jobs or from using your property in some way you may be able to take advantage of a tax-free £1000 allowance for this money earned from the 'sharing economy';
- Commentators pointing to a likely increase in fuel duty were proved wrong as the announcement was made by the Chancellor that it would remain frozen at its present level. He also announced that the Petroleum Revenue Tax levied on oil companies would be abolished;
- Beer and cider drinkers will see no duty increase on their favourite tipple;
- New measures are to be introduced to ensure that multinationals can't reduce their tax bills artificially by moving profits out of the UK;
- Small businesses will benefit from an increase in the rateable value threshold under which business tax rates are not payable;
- A rabbit out of the Chancellor's hat today was the announcement that Capital Gains Tax rates are to be cut from 28% to 20% for higher rate income tax payers and from 18% to 10% for basic rate payers. This reduction comes into effect from 6 April 2016. However there is a sting in the tail because if what is charged to this tax is a gain on a residential property (a let property for example but not your home) there is an 8% surcharge which effectively keeps the rate as it is at the moment;
- Self -employed individuals running their own businesses will not need to pay Class 2 National Insurance Contributions from April 2018
- The Chancellor announced that there would be changes to Stamp Duty on commercial property transactions;
- There had been speculation before Budget Day that salary sacrifice arrangements under which employees give up part of their salary in exchange for payments into pension schemes, childcare arrangements and health-related benefits were at risk. However the Government has confirmed that although it is looking at limiting the range of benefits available under salary sacrifices these will continue to benefit from Income Tax and NICs relief;
- Finally there was an affirmation of his Government's commitment to continued clampdown on tax avoidance and tax evasion, a theme which has echoed throughout Chancellor Osborne's eight Budgets.