The Chancellor hailed his, pretty political, budget as being for 'savers, makers and doers' which could equally have been translated as for savers and businesses, notably manufacturers and those wishing to export. However, whilst there were plenty of items which may be of interest to freelancers and contractors, as members of the working, tax-paying and saving population in general, there was nothing specifically targeted at them, which can probably be seen as a relief given the legislation they are already being asked to consider.
There was no mention of the Lords Committee on Personal Service Companies (due to report by 31 March) and no reference to IR35. The onshore intermediaries legislation for false self-employment will apply from April 2014, as planned but in general, it is hoped that legitimate contractors working through limited companies or umbrella arrangements should have nothing new to fear.
For any contractors that have used more exotic tax avoidance schemes and have not yet reached agreement with HMRC however, there was a major and worrying change announced - anyone using a tax avoidance scheme and who has had an enquiry notice or notice of assessment, will now be required to pay the tax assessed up front and claim it back if they win a court appeal, as opposed to HMRC having to prove that they have broken the law before they have to hand the tax over - the equivalent of being judged guilty until proven innocent. HMRC's own analysis estimates that around 16,000 contractors could be affected by this change.
The main details from the budget are included in our accompanying report. Some of the non-contractor-specific items that may nevertheless be of interest to contractor clients and which we would draw your attention to are:
- An increase in the personal tax-free allowance to £10,000 from April 2014 and £10,500 from April 2015 and this also flows through to an increase in the 40% threshold, meaning a little less of your income will attract higher rate tax
- A £2,000 allowance for all businesses on employer's national insurance, meaning the first £2,000 of employer's NI is not payable. In one sense, this provides an option to pay a slightly higher level of director's salary, up to the £10k personal allowance, without incurring employer's NI. However, doing so would mean that contractors would have to pay additional employee's national insurance that they do not currently incur on the level of salary we recommend and they would only get this back through a corporation tax deduction at the end of the year. The saving ultimately amounts to around £160 but there is an immediate additional cash flow cost, with the benefit not being felt until more than a year later, so we recommend no change
- Increases in the amount that will be allowed to be saved tax-free in an ISA (up to £15,000) and a more flexible approach allowing this to be held in a lower risk cash ISA as well as stocka and shares, as well as the ability to transfer a share ISA into a cash ISA (for example, if you are wishing to reduce the risk level of your investments, say when saving for a house deposit
- Continuation of the Help to Buy housing scheme to 2020
- Much more flexibility around what can be done with pension pots on retirement - no compulsion to purchase and annuity with lump sums allowed to be drawn as cash for the individual to decide how this is spent
- Reviews into the simplification of tax rules around travel and subsistence expenses and into the CIS scheme for construction workers have been announced
Other items to note for businesses, particularly manufacturers and exporters were:
- A doubling of the Annual Investment Allowance (tax deduction for investment in business assets) to £500,000 per year until 31/12/15
- A doubling of the support available to exporters to £3bn and a reduction in the interest on loans to such companies
- A reduction in energy bills
- The permanent inclusion of the Seed Enterprise Investment Scheme - giving investors in SMEs relief from income and capital gains tax
- Support for another 100,000 apprentices
- An increase in R&D tax relief for loss-making businesses
- An extension to business rates relief n enterprise zones