Chancellor George Osborne promised a Budget to reward work, back business and be on the side of aspiration. Below are specific measures that will affect contractors and freelancers:
- An increase in the personal allowance by a further £1,100 in April 2013 – the largest increase in the personal allowance in the last 30 years.
- A reduction in the top rate of tax from 50 pence to 45 pence in April 2013
- The introduction of a limit on all uncapped income tax reliefs. For anyone seeking to claim more than £50,000 of relief, a cap will be set at 25 per cent of income (or £50,000, whichever is greater).
The Chancellor also said they are pressing forward with their ambition to integrate the
operation of income tax and national insurance – so that businesses to run two different
payroll tax administrations.
A detailed consultation on this is being published next month.
An additional one per cent reduction in the main rate of corporation tax. The rate will
reduce from 26 per cent to 24 per cent in April 2012, then to 23 per cent in April 2013 and
to 22 per cent in April 2014.
Personal Service Companies and IR35
The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business. This will include:
- Strengthening up specialist compliance teams to tackle avoidance of employment income.
- Simplifying the way IR35 is administered.
- Subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013).
The first two points are nothing new and both have been well trailed from the work of the Office of Tax Simplication’s IR35 Forum. However the third point:
Subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013).
This is something new – and often feared by contractors. Even a decade ago, there was concern when IR35 was first introduced that it would fall upon the clients/agents to deduct tax and NICs.
Those fears were not realised – fortunately as some thought they could signal the death knell of freelancing. However, they have now resurfaced – albeit in a very vague form.
The wording of this is far from clear and leads to a lot more questions than there are answers.
What is for sure is that any sentence which contains the words ‘IR35′ at the same time as PAYE and NICs deducted at source’ are bound to send a shiver down the spines of many freelancers.
The measure is aimed at the Finance Bill 2013 so there are 12 months of consultation, during which the ‘interested parties’ should ensure that this sledge hammer targets the right nut.
The Chancellor promised to pass on low interest rates to small businesses through National Loan Guarantee Scheme.
Barclays, Lloyds, the RBS, Santander and the new business bank Aldermore are all involved with £20 billion of guarantees in total will be available.