Summer Budget 2015: a contractor’s checklist

For being the first Budget of the new parliamentary term, and the first pure Conservative one for nearly two decades, Wednesday’s Red Book will be a good barometer as to how the government plans to balance the books over the next few years, writes Mark Perry of Moore Stephens.

This first Budget of the term has typically been the time to deliver ‘bad news’; the giveaways being saved for immediately prior to an election. However, with a Bill already announced to ensure no increase in the rates of income tax, national insurance or VAT before 2020, the chancellor will need to look elsewhere for increasing the tax pot.

So where will the chancellor find the money?

While continued growth in the economy and a decrease in benefit spending will go some way to balancing the books, there is no doubt that while the rates of tax will not increase there will be continued legislative changes to shut any remaining tax avoidance loopholes. However, HM Revenue & Customs is under-resourced and seemingly unable to keep up with changes to tax planning, so an increase in staffing at the tax department would perhaps be a sensible move.

Aside from the perennial issues such as ‘non-doms’ and how to deal with international groups, here are the key areas that contractors should look out for when George Osborne gets to his feet in the House of Commons a week from today:

► IR35

Any abolition of IR35 is may be wishful thinking at best. While HMRC has made its representations to the government about how difficult the legislation has been to manage, the number of cases investigated over recent years has been surprisingly low. Given the additional legislation covering false self-employment in the construction sector and overseas agencies in recent years, the government is perhaps expecting a little better return here from HMRC.

► Settlements Legislation

One area where clarification would be more than welcome is in respect of the settlement legislation, following the ‘Arctic Systems’ and other cases. This has put a large number of smaller, family-run businesses into a real position of uncertainty where shares are transferred within the family.

► Salary Sacrifice

We do not anticipate any major changes to salary-sacrifice arrangements. Where perceived anti-avoidance has been targeted in the past this has been in making the benefit provided post sacrifice taxable (e.g. on-site canteens and the proposed new travel and subsistence rules from April 2016). There are practical issues in trying to unravel salary-sacrifice arrangements that will make this difficult to address, and so the current route to tackling avoidance is likely to continue.

►Capital Gains Tax

Typically, the Conservative party, seen as the friend of entrepreneurs and business owners, have a history of decreasing corporation tax and capital gains tax rates rather than increasing them. These taxes are not untouchable, but probably are ones to be addressed in later years if the planned spending cuts do not produce the required level of savings.

►Annual Investment Allowance

Setting the cap on the AIA for 2016 was ducked by the chancellor in the last Budget, with him stating he would look again at this later in the year (specifically, at Autumn Statement 2015). But any early announcement from him here would be helpful, as expenditure on plant and machinery often has a long lead time and contractors need time to plan their spending.

► National Insurance

The abolishment of Class 2 NIC for self-employed workers will be a welcome administrative easement, but whether there are any savings in NIC payable will depend on any reworks to the Class 4 NIC system that would likely fall outside of the pledge to cap NI.

► Pensions

The ability to sacrifice into employer pension funds is likely to remain, especially as more and more small employers become affected by auto-enrolment over the next 18 months. There is, though, likely to be some clawback on the relief available for additional rate taxpayers - those earning over £150,000. (Ed: A leading IFA to contractors has exclusively disclosed their Budget predictions for contractor pensions to ContractorUK - here).

► Apprenticeships

As well as the current employer NIC breaks for under-21s, there is a further employer NIC exemption for apprentices under the age of 25 from April 2016 already in the pipeline. Expect this to be re-announced as part of a series of proposals to try and help young people out of benefits and into work. The national minimum wage increase for apprentices from £2.73 an hour to £3.30 in October has already been announced.

► Scottish Income Tax

While not set by the chancellor, the Scottish Act 2012 does allow for Scotland to amend the income tax rate from April 2016. If there is to be a different rate set from the current UK rate then it is likely the Scottish Parliament will make an announcement shortly. Even when this occurs, current guidance is that the current CIS deduction rates will remain unchanged as these are only estimated rates.

Final thought

The above nine areas represent just some of the anticipated Budget announcements that could impact contractors next week. It therefore seems worth temporary professionals’ time to be on the look-out for these as well as other unveilings from the chancellor that have the potential to make them better or worse off.

Editor’s Note: Related Reading –

Osborne told to unveil simpler, clearer taxation

Contractor sector makes early demands of Cameron

Entrepreneurs’ Relief seen as ripe for reform