Following a fraught and busy financial year, the overall assessment of how well Chancellor George Osborne has implemented his promises from the 2013 Budget is – not bad, could do better. Critics rounded on the government’s policy on borrowing for example, with the Shadow Chancellor, Ed Balls, calling the government’s stance as ‘borrowing for failure’.
The UK sterling also declined unexpectedly by 7.2% and not 6.3% which was previously thought. ‘Help to Buy’, the scheme that encourages first time property buyers has also had its critics, with many blaming the scheme for a London property bubble. For contractors, the overall picture for 2013 was relatively positive, with the personal tax allowance rising and business growth vouchers introduced, which can be used by limited company directors to gain advice on topics such as marketing and business planning.
What of the 2014 Budget?
George Osborne recently made it clear that austerity measures will still be in place throughout the 2014/2015 financial year, despite encouraging signs the economy is getting back on track. Speaking to Sky News in January, Mr Osborne emphasised the need for tax cuts for low to middle class incomes. He also stressed the risks of destabilising the economy, calling 2014 the year of ‘hard truths’.
Where would we like contractors to benefit from this year’s budget?
Anti-late payment rules What we’d like to see: Rules put in place aimed to stop the 85% of contractors being paid late. Although there are currently rules in place, it’s still very difficult for many contractors to get paid on time. How it will benefit you: A fairer system where your limited company is paid promptly and on time by a client or face potential penalties or fines. Knowing exactly when your client will pay you will also make it easier to carry out tax planning with your accountant, ensuring you pay a lower amount of tax.
Crackdown on offshore tax avoiders What we’d like to see: A strengthening position from HMRC on contractors with companies offshore or contractors that have previously held offshore companies. How it will benefit you: As long as your company is in the UK and operating correctly, then this won’t affect you in any way. What this will do is strengthen the country’s position on offshore accounting and would therefore avoid other contractors asked to pay back thousands of pounds in tax. Churchill Knight never recommends going down the offshore route for this reason.
‘False Self Employment’ Reassurance What we’d like to see: Some concrete clarification for legitimate self-employed contractors, on the government’s targeting of ‘false self-employment’ – the ‘dress up’ of employed workers as self-employed workers. How it will benefit you: The government’s stance on this is to stop companies from avoiding certain employment taxes by disguising employed workers as self-employed. There is a lot to the legislation that is due to come into force this April, so a clear stance that legitimate self-employed workers won’t be affected, will alleviate many contractor anxieties.
A further increase of the tax allowance What we’d like to see: Although pretty unlikely this year, according to sources close to the Chancellor, a further rise of the tax-free allowance to 12,500 in April 2015. How it will benefit you: You’ll take home more tax free money each month.
National Insurance re-branding What we’d like to see: National Insurance, a 100-year-old institution, to be renamed ‘Earnings Tax’ in order to simplify the process for contracting taxpayers. How it will benefit you: Understanding tax could be easier to get to grips with could also result in better transparency on how you are taxed and what is spent on what.
Simplification of benefits & expenses What we’d like to see: Echoing what the Office of Tax Simplification suggest on benefits & expenses for limited and umbrella companies – limited companies should be given the option of processing benefits for staff including directors via a payroll system rather than through submitting a P11D to HMRC. The legislation should also be amended to include qualifying business expenses paid for or reimbursed by the employer. How it will benefit you: The process of claiming for any ‘Benefits in Kind’ and ‘Expenses’ through the use of a P11D form will become redundant and therefore, your life simpler; always welcome when working as a limited company contractor.