Budget 2011: Headline points for contractors - IR35 to be enforced better
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...