The Chancellor, George Osbourne, is delivering his 2011 Budget from the House of Commons. Here we provide an ongoing summary of the key points affecting contractors:
- Nothing specifically mentioned in his speech.
- Budget document states Osbourne choses Option 2 from OTS Review - to administer IR35 better, ruling out abolution of IR35
- Intention to merge Income Tax and NI - a project which will take "many years"
- Tax avoidance: New paper on Tackling Tax Avoidance published.
- The ‘small profits’ rate of corporation tax paid by contractor limited companies falls by 1% to 20% from 1st April 2011
- Main rate to drop by 2%
- The basic allowance increases by £1,000 to £7,475 from April 2011, and to £8,015 in 2012, but higher and additional rate taxpayers won’t benefit
- The higher rate threshold falls to £35,000 from £37,400 meaning many contractors will not actually benefit from the increased personal allowance
- 50% top rate of tax to remain but review of how much it raises
- National Insurance Contributions (NICs) are set to increase for employers to 13.8%, from 12.8%
- Higher rate contractors will receive reduced childcare tax allowances
- ‘Employment Income through third parties’ legislation will tax income through schemes such as Employee Benefit Trusts (EBTs) as employment income, adding income tax and National Insurance Contributions, effective from 9 December 2010
Pensions, savings and investments
- Tax free pension contribution allowances fall to £50,000 a year, and the lifetime allowances falls to £1.5m from the 2012-2013 financial year onwards; the changes are complex and contractors should consult their Independent Financial Adviser (IFA)
- Contractors with property portfolios where they let furnished holiday properties lose a range of allowances which will leave them out of pocket
- Individual Savings Accounts (ISAs) allowances increase by £480 to £10,680 a year, which includes a component in case of £5,340
- 2011 growth forecast downgraded from 2.1% to 1.7%
- 2012 forecast also down from 2.6% to 2.5%
- Inflation set to remain between 4% and 5% in 2011
- Borrowing of £146bn this year, £2.5bn lower than anticipated
- National debt forecast to be 60% of national income this year, rising to 71% in 2012
More updates to follow...