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Budget 2006: effect on contractors

The Budget 2006 has had little effect for contractors.

Non-corporate distribution rate removed

The chancellors decision in March 2004 to introduce a new tax rate for small companies has been reversed, or replaced as the chancellor states.

The initial plan was to provide relief for small companies with a zero starting rate up to £10,000.

Corporate tax rates return to the same as they were in the March 2003 Budget.

Contractors earning more than £15 per hour are no affected. Contractors earning between £10 and £15 per hour who are NOT caught by IR35 will see a minor saving in taxes, although negligable.

Crack down on tax avoidance

The Chancellor announced that further measures will be taken to crack down on tax avoidance. Nothing concrete in terms of legislation, but he does mention managed service companies, which the PCG interpreted as being Composite Company schemes.

For contractors who are genuinely outside of IR35 and have structured their payment structure accordingly should have nothing to fear. Contractors who are inside IR35 but are using schemes to evade tax should seriously start thinking about putting their affairs in order.

Other points

Personal tax allowance raised by £140 to £5,035. Tax bands raised to £2,150 (10%), £33,000 (22%), and £33,000+ (40%).

Exemption on stamp duty raised to £125,000.

And finally, for those contractors who like to unwind after a hard days work in the pub, will now be taxed an extra 1p on a pint of beer and 9p on a packet of cigarettes.