Contractors look set to directly benefit from a raft of measures announced in the Autumn Statement 2014 that include tax allowance increases, savings and pensions boosts alongside Stamp Duty cuts for homebuyers.
The Chancellor George Osborne opened his speech by declaring that: “I present a forecast that shows the UK is the fastest growing of any major advanced economy in the world.”
Low inflation coupled with ongoing economic recovery enabled the Chancellor to announce an unexpected range of giveaways and spending plans that should benefit most contractors.
However, those using tax avoidance schemes remain firmly in the government’s sights as the statement includes measures to strengthen anti-tax-avoidance legislation and provide additional resources to HMRC to tackle tax avoiders.
How contractors will benefit from the Autumn Statement 2014
Measures announced by the Chancellor that may impact on contractors include:
- The personal tax allowance will increase to £10,600 next year, instead of increasing to £10,500. The higher rate tax allowance increases for the first time in five years to £42,385 next year, with a target of reaching £50,000 by 2020
- Stamp Duty is to be reformed, with the ‘residential slab system’ being abolished and replaced with a sliding charge: 0% up to £125,000, 2% up to £250,000 and 5% up to £925,000
- Devolution of corporation tax setting powers to Northern Ireland’s government could lead to contractors based in the country enjoying different and possibly lower rates of tax to compete with the low rates in the Republic of Ireland
- A package of £45m to support exporters with a focus on first time exporters, could include measures to help contractors develop client networks overseas
- The proposed investment in infrastructure, such as roads and flood defences, will directly benefit the engineering and construction sectors, and is likely to support new contracts for engineering and construction contractors
Stronger tax avoidance measures to come
Less positively, the ‘diverted profits tax’ on tech firms may result in some clients moving their business – and their contracts – to lower tax jurisdictions, and the new tax on banks could result in projects being postponed or cancelled, with contracts lost.
Furthermore, umbrella companies look set to become the target of a new consultation aimed at investigating both tax avoidance and employment rights. The Autumn Statement 2014 document says:
“The government is also concerned at the growing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’, which allow some temporary workers to benefit from tax relief for home-to-work travel expenses that is not generally available to other workers. The government will review these arrangements and publish a discussion document inviting representations from interested parties to inform potential future action.”
The government is also concerned at the growing use of overarching contracts of employment by employment intermediaries such as 'umbrella companies'
Additional tax avoidance measures for individuals include cracking down on a range of specific schemes, plus a strengthening of the Disclosure of Tax Avoidance Schemes (DOTAS) legislation. HMRC’s DOTAS task force will also be granted additional resources.
Contractor personal finances
Additional measures that will impact on contractor finances are:
- ISA thresholds will increase to £15,240 from April 2015
- A freeze in fuel duty will benefit contractors commuting by car
- Contractors with younger children should enjoy savings as Air Passenger Duty will be under-12s from 1 May next year and for under-16s the following year
- If a contractor or their spouse dies, the surviving spouse will inherit any ISA savings and the savings will retain their tax-free status. Previously, the savings would revert to being taxed
- The 55% death tax that is passed on to family will be abolished.