Contractors are facing a mixed bag of benefits and penalties from the Budget 2015. Most measures will benefit contractors, particularly those with savings, except those targeting umbrella company expenses.
In his Budget speech, the Chancellor George Osborne set the scene by saying: “Today I report on a Britain that is growing creating jobs and paying its way.”
He signalled that this was not a Budget for giveaways by adding that: “We choose to use whatever additional resources we have to get the deficit and debt falling.”
Less positively for contractors is an ongoing focus on tax avoidance that will, according to Osborne: “Stop employment intermediaries abusing the tax system,” by “clamping down on agencies and umbrella companies who have abused tax reliefs for expenses”.
Budget 2015 measures affecting contractors
The measures impacting on contractors include:
- Self-Assessment tax returns will be abolished and online tax accounts will be used in their place
- The personal allowance will rise to £11,000 by 2016/17, but no comensurate increase in the National Insurance Contributions (NICs) threshold. Better news is that the higher rate increases to £43,00
- Tax relief on lifetime pension pots will fall from £1.25m to £1m, but will be indexed from 2018 to protect those in place
- Umbrella company and agency payroll expenses to be targeted for anti-avoidance measures
- Changes to Entrepreneurs Relief (ER) could impact on how contractors can extract cash tax efficiently from their limited companies
- A more flexible ISA to be introduced that does not penalise savers for withdrawing and replacing funds during the year
- Contractors starting on the housing ladder can gain £50 for every £200 saved via a new Help to Buy ISA
- A new personal savings allowance so the first £1,000 of savings income will not be taxed
- Contractor accountants and tax advisers will be subject to new anti-avoidance legislation
- Oil and gas contractors will benefit from a range of tax measures designed to kick-start production and exploration in the North Sea
- TV, film and gaming tax credits will support IT contractors and freelancers working in the UK’s creative sector
- Indirectly, contractors look set to benefit from a significant investment in infrastructure, in particularly in the North and South West
- Fuel and alcohol duties are being frozen or cut.
Prospects for oil and gas contractors look set to significantly improve. The Chancellor highlighted that: “The fall in the oil price poses a pressing danger to the future of our oil industry if we don’t take action.”
As a result, petroleum revenue tax will fall to 35% from 50% to stimulate production in older fields. A single investment allowance will be introduced next month and the government will invest in seismic surveys in underexplored areas to spur exploration.
ContractorCalculator will continue its analysis of the Budget 2015 and its implications for contractors during today and tomorrow, so make sure you check back regularly.