Contractor pension annual contribution and lifetime allowance tax relief will be reduced in 2014-2015, alongside reductions in real terms of the higher rate tax threshold. Both these measures will impact on contractor incomes and tax liabilities
However, the Autumn Statement reveals that the controlling persons legislation will not be introduced in 2013 as planned; although ominously: “The Government is strengthening the existing intermediaries’ legislation (IR35) to put beyond doubt that it applies to office holders for tax purposes.”
“We are on the side of those who want to work hard and get on,” announced Chancellor George Osborne, adding that there will be “no net rise in taxes – any taxes increased are offset by taxes cut.”
Key measures impacting on contractors include:
- No controlling persons legislation for 2013, although IR35 will be strengthened
- Annual pension contribution allowance will fall to £40,000 from £50,000, and the lifetime allowance will fall to £1.25m, from £1.5m, from 2014-15
- Although the personal allowance will increase to £9,440 in the next financial year, the higher rate tax allowance will increase by 1% in 2024-25 and 2015-16, less than the rate of inflation, which will result in a net increase in contractor income tax
- The 3% fuel duty rise due for January is cancelled
- A boost for engineering and construction contractors in the form of a £5.5bn investment in infrastructure, which will include road, rail and major developments, plus funding for 120,000 homes
- Contractors can include Alternative Investment Market (AIM) shares in their equity ISAs.
The Chancellor also announced measures to tackle tax evasion and avoidance, targeting the promoters of aggressive tax avoidance schemes, reaffirming the government’s commitment to introduce a General Anti Abuse Rule (GAAR) in 2013, and revealing plans to hire 2,500 new tax inspectors for HMRC by providing an additional £77m in 2013.