The Chancellor opened this year’s Budget by committing to make this a Budget for “makers” and “doers”. This definition typifies the UKs flexible workforce, so we have taken a look at how far the Chancellor has gone to support this important part of the economy.
Tax and National Insurance
Firstly we look at how the tax and NI changes coming into effect in 18 days benefit you.
We calculate that a typical limited company contractor will benefit from a reduction in their tax bill of £250. An equivalent umbrella employee is likely to benefit to the tune of £160 per year. So far so good for the UK’s flexible workforce. However for some contractors it is not all good news.
As we expected, today’s Budget announcement confirmed that there are two significant measures to combat tax and NI avoidance which will take effect from 6 April 2014, which impact contractors working via offshore employment intermediaries and onshore false self-employment intermediaries. We welcome these changes to tackle non-compliance which further highlight HMRC’s clamp down on tax avoidance within the temporary labour market which are expected to deliver £450 million and £2.5 billion respectively of additional revenue to the Exchequer over the next 5 years.
Brookson’s recent blog ‘Tax changes impacting contractors‘ provides more details on this topic but in summary if you operate your own UK based limited company or work via a UK based umbrella company (which employs you and deducts PAYE from your income) you will not be affected.
Simplification of the tax system
In response to the Office of Tax Simplification’s review, the government has announced that it will consult on simplifying the tax treatment of benefits and expenses. The government also intends to review the rules underlying the tax treatment of travel and subsistence expenses. This is potentially good news for contractors as it is acknowledged that the rules on expenses have historically been a “grey area” and simplification and certainty would be welcomed.
The government has also announced that it will consult in the summer on options to improve the operation of the construction industry scheme (“CIS”) for smaller businesses and to introduce mandatory on-line filing for contractors. Improvements to the scheme would be helpful providing HMRC take on board consultation responses from the industry and don’t use this as another way of increasing taxes.
Sector investment
One sector which was specifically mentioned in today’s announcement was oil and gas. The government has acknowledged its commitment to work with the oil and gas industry to ensure that the UK has the right skills and supply chain in place to benefit from the huge potential of the country’s oil and gas reserves in a bid to make the UK’s oil and gas supply chain world leading, creating local jobs and growth across the UK. This can only be good news for contractors specialising in this sector.
In summary whilst most contractors will be slightly better off in terms of take home pay, and some contractors may be impacted by new anti-avoidance measures, it feels like more of the same from HMRC in that the flexible workforce have not gained any significant benefits from this year’s Budget.
Positives to take from this and last year’s Budget which should provide comfort to the flexible workforce are that there is a degree of stability in the tax regime for limited company contractors and umbrella employees and a growth in the economy and greater demand for jobs. Whether the Chancellor has done enough to support contractors and freelancers is open to debate; we would be interested in your comments?
Click here to download our FREE Budget 2014 guide, summarising the forthcoming tax changes, as well as providing some hints and tips about how this could impact you as a contractor.
I am a chartered tax advisor with a specialism in the freelance contractor sector advising contractors on how to structure their affairs and recruitment businesses and end hirers on the effective…
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