Crystal Umbrella

Wednesday’s Budget offered no dramatic changes for contractors, with the notable exception of those with high incomes, who will face restrictions on pension contributions and possibly higher income tax. Some agendas, like the call to terminate IR35, as well as several issues regarding umbrella companies and expenses, were notably absent from the Chancellor’s Budget.

Contractors who might potentially benefit from the budget changes include those active in the energy sector, as a range of measures were announced to support North sea oil and gas extraction and exploration, as well as funding and support for renewable energy schemes. Small businesses may find their corporation tax returns simplified, if the government decides to implement initiatives to that effect outlined in the Budget. Additionally, the previously announced rise of corporation tax to 22% will not happen, and it will remain at 21%.

The only contractors who will be decidedly negatively affected are those with an annual income in excess of £100,000, who will face restricted relief on their pension contributions as well as seeing their ‘tax-free’ allowance of £6,475 being reduced to zero; and those earning over £150,000 per year, who will additionally pay 50% income tax from 2010.

Some experts expressed criticism of the Budget’s lack of detail as a possible excuse to re-introduce schemes now deferred, as well as the Chancellor’s apparent refusal to address the IR35 issue. However, as it stands the majority of contractors will remain largely unaffected by the new Budget and have no cause for concern.

The Chancellor of the Exchequer made it clear in his recent Pre-Budget Report that he would leave the current rules on tax relief for travel expenses unchanged. However, he also promised that the HMRC will refocus its efforts to ensure that the current regime is properly applied. He added: “If compliance does not improve, the Government may return to
this at a later date.”

The message to the industry is clear. We must clean up our own stables or face action that could undermine the industry. The easy option is to go on as before, hoping that the government has bigger fish to fry and won’t do what it has promised, but this may leave many stranded and again non compliant.

The AEMC, along with Crystal Umbrella & other members at the forefront have decided to be proactive and seek to build a strategic relationship with ministers and HMRC. The AEMC also wants the trade bodies’ presence to increase the understanding of the industry and its issues amongst parliamentarians of all parties.

It has therefore been decided to engage the services of a political adviser, Gary Kent, a veteran insider in Westminster who has worked for 22 years as a researcher, columnist and lobbyist for cross-party causes.

Gary Kent said: “the AEMC now has the opportunity to build itself as a respected trade association that can influence opinion-formers and decision-makers that its activities benefit temporary workers and the Economy as a whole. The sector must demonstrate that self-regulation can work for everyone.”

He added: “My aim is to bring AEMC representatives together with Parliamentarians, and others, to make it plain that the AEMC is deadly serious about compliance. It has to prove beyond reasonable doubt that it is willing and able to step up to the plate. Even if the sector wasn’t interested in politics, politics is interested in the sector.”