The “pro-business” 2012 Budget may have provided many boons for large businesses in the form of an extra 1% cut in the Main Rate of Corporation Tax (which will now fall from 26% to 24% in April), increased R&D tax credits, and a 5% income tax cut for their wealthy executives, but there was little meaningful change for contractors, freelancers and small businesses.
Many of the measures we were expecting to be introduced – reduced accounting responsibilities for micro-businesses and the merging of National Insurance and Income Tax – were promised, but not actually delivered.
The bump in tax-free allowance (which will now rise to £9,205 in April 2013) will provide a small but welcome bump in tax-free income for all contractors, but the continuation of the 20% Small Profits Rate of Corporation Tax will mean no added tax efficiency for those operating their own limited company.
The higher rate income tax threshold will also be changing in April 2012 – down from £42,475 to £41,450, meaning around 300,000 individuals will be drawn into the higher rate of tax.
On IR35, the Budget documents offered a welcome, but vague, picture of HMRC’s plans to improve enforcement for the UK’s contractors and freelancers:
The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business. This will include:
- Strengthening up specialist compliance teams to tackle avoidance of employment income;
- Simplifying the way IR35 is administered; and
- Subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)