Crystal Umbrella

The newly appointed Chancellor of the Exchequer, George Osborne, has announced the date of his Emergency Budget. The new coalition government had stated that it would host an Emergency Budget within 50 days and the date has now been set for June 22^nd. It is expected that when the Budget is delivered it will contain tax rises and spending cuts.

Under the Labour government, tax receipts were considerably less than government spending on the whole. It is, therefore, no surprise that the fiscal finances are in a bad way. Of course, this issue was compounded by the global economic crisis which means that this government has a huge deficit to recover. This is sure to result in some unpopular decisions at the Budget on 22^nd June.

It is expected that George Osborne will detail how he plans to cut £6bn in public spending. Of course, this is just the beginning. It is likely that he will also announce tax increases. The first tax increase is expected to see VAT increased from 17.5% to 20%. Also, as Capital Gains Tax rates on non-business assets currently sits at 18%, this is likely to be increased to approximately 40%.

However, the Conservative manifesto laid out plans to decrease corporation tax rates. Small companies can expect to benefit from a 1p cut in their rate – down to 20p from 21p. The Liberal Democrats had laid out plans to increase the lower threshold of income tax to £10,000. This is unlikely to happen in all at once under the coalition government. Instead it is likely there will be an incremental increase over the term of the government.

At the start of this week, when the construction of the new government was still uncertain, the Forum of Private Business called for MPs and policy-makers to prioritise free enterprise, fiscal responsibility, stability and new technologies and markets in order to strengthen the economy and grow businesses. They also suggested that the new government should stop the planned rise in NICs.

Now that the new government has been decided, with the coalition between the Conservatives and Liberal Democrats, the Forum has welcomed this news but remains cautious regarding what the new administration will actually deliver for small businesses.

Phil Orford, chief executive, commented: “There’s no doubt that the past week has been an anxious and worrying time for small business owners. Smaller firms urgently need some degree of certainty so they can begin to plan for the future. Hopefully, Mr Cameron’s appointment will herald the beginning of a workable government which will ensure economic stability and give smaller firms the confidence to aspire and grow.

Mr Orford concluded: “I would just like to reiterate the Forum’s previous calls for politicians of all political persuasions to show responsibility and put aside their differences in order to avoid pushing the UK into further economic turmoil. It is imperative that our MPs put aside point-scoring and work together to make Britain a stable and prosperous place to run a business.”

Today we take our final look at the manifestos of the three main political parties and what their pledges will mean to contractors voting in the general election next week. We have already examined the manifestos of Labour and the Conservatives, so today we conclude with the Liberal Democrats and their plans for tax, the economy and business.

The first pledge made by the Liberal Democrats regarding tax is for each individual’s first £10,000 earned per annum to be tax free. They believe this will equate to a tax cut of approximately £700 per person. They also plan to remove the 3.6 million people who are low earners or pensioners from the income tax threshold. They aim to pay for these cuts in taxes by closing the existing tax loopholes which, they believe “unfairly benefit the wealthy and polluters”.

In line with their aim to make tax fairer, the Liberal Democrats have plans to award fresh powers to HMRC to tackle tax evasion and avoidance with regards to corporation tax, stamp duty and NICs. They also plan to ensure that properties in an offshore trust cannot avoid stamp duty. The Liberal Democrats have also pledged to place restrictions on tax credits or scrap the Child Trust Fund to release further funds.

With regards to the economy, the Liberal Democrats have plans for their first year in office if they win the election, where they will unveil a job creation and fiscal stimulus program. They have a dedication to developing a greener economy while reducing the deficit. They  believe their green stimulus plan will create 100,000 job opportunities. However, one of their main aims is to break up the banks. Assuming conditions remain as they are at present in the UK economy, they also plan to introduce spending cuts from the start of 2011-12. They are also planning to set up an Infrastructure Bank which will direct private finance towards such projects as new rail services.

The Liberal Democrats have stated that their primary aim in breaking up the banks is to ensure that they start to lend to businesses again. They also wish to encourage local investors to put money into Local Enterprise Funds which will grow businesses in each locale. A Creative Enterprise Fund will also be introduced. Rate relief for businesses will  be simplified with small businesses receiving automatic rate relief. Regional Development Agencies will also be reformed under a Liberal Democrat Government. It is another aim of this party to make sure that businesses in the UK are not disadvantaged by EU rules. However, with regards to UK rules, they want to adopt the ‘one in, one out’ principle to reduce the administrative burden on businesses.

Regarding foreign workers in the UK, the Liberal Democrat want to make the points-based system regional so that migrants workers will only work in the areas that they are actually needed.

With regards to the emergence of ‘Digital Britain’, the Liberal Democrats aim to support the roll out of superfast broadband by supporting public investment in this arena. They also aim to target this at the areas of the country which are least likely to be provided for.

The Liberal Democrats have pledged to scrap ID cards and biometric passports. They wish to consider the potential of open source software and cloud computing within government IT procurement. Finally, they will cap public sector pay rises at £400 for an initial period of 2 years.

Yesterday we looked at the pledges of the Labour Party which are most pertinent to contractors. Today we do the same; looking at the pledges of the Conservative Party with regards to tax, the economy and business.

As we are already aware, the Conservative Party have vowed to review the taxation system for small businesses, including the IR35 rule. Of course, just last week we heard from a Party representative that this is unlikely to include the abolition of IR35. They also plan to create an independent Office of Tax Simplification whose role will be to make suggestions on tax reforms. The Conservatives are also planning to lower the corporation tax applicable to small businesses to 20%. Their manifesto also states that they will “stop the most damaging part” of the increase in NICs planned by Labour. Also, with regards to NICs, they are planning to raise the primary and secondary earnings thresholds by approximately £20 per week while year one trading companies will receive a waiver of their NIC contributions for their first ten employees. As a result of the NIC thresholds increase, the Upper Earning Limit will also increase.

The Conservative Party also plan automatic relief for small businesses and they will award powers to local councils to apply rate discounts. Headline Corporation Tax will also be cut to 25%. They do not plan to keep the 50p per month landline tax as outlined in Labour’s manifesto – to fund ‘Digital Britain’.

With regards to the recovery of the economy, the Conservative Party plan to hold an emergency Budget within 50 days of taking office, if they win the General Election, the aim of which is to set out their plan for eliminating the majority of the structural budget deficit. They then pledge to act quickly to cut said deficit. They aim for the British economy to be less dependent on financial services and, instead, lead on technology, science and innovation. They have vowed to favour low interest rates and protect the UK’s credit rating. Again, they are planning to create an independent Office for Budget Responsibility  with the aim of restoring public trust in the government’s handling of the country’s finances.

Private businesses can expect a boost in their share of the economy. They have also pledged 25% of Government procurement contracts to SMEs. With regards to , they are planning to implement the recommendations of Sir James Dyson regarding how to ensure Britain is Europe’s top hi-tech exporter. They will also ensure that all tender documents for contracts worth £10,000 or more will be published online. The Conservatives have also pledged to ease the ‘red tape’ which is faced by many businesses by applying the ‘one in, one out’ approach to new rules.

The Conservatives will, however, plan to freeze all spending on major ICT projects within the public sector. They will also have a tight control on all public sector recruitment. They have pledged to cut discretionary spending on expenses, travel and consultancy services. They will be splitting the larger governmental IT projects into smaller parts to go through the procurement process. Finally, public sector pay will be frozen for one year in 2011 but this will exclude the 1m lowest paid workers.

The Conservative party has announced plans to reform tax systems for the self employed. One option which they are currently considering is to give those individuals who work via a one person company, the right to opt out of employment. In real terms this means that those individuals would lose their entitlement to maternity pay, statutory redundancy pay and jobseeekrs allowance. They  also be liable for Class 2 NICs at £2.40 per week as opposed to Class 1 NICs.

Shadow Business Minister, Mark Prisk, spoke to The Telegraph about the current tax system, stating that it was unfair for people who worked outwith the traditional employment model. In particular he made reference to IR35. This legislation required contractors to prove their  independence and if they are unable to, they are required to pay NICs alongside their ‘employer’.

Mr Prisk said: “The current government has treated the self-employed disgracefully. More often than not they have treated them as if they are on the fiddle, which is wholly unacceptable. We want to reform the system.”

As the Tories set out plans for reform, they have been working alongside the PCG. Their head of public affairs, Simon McVicker, said: “”We have been talking to them about reforms and getting rid of IR35 and have been looking at some options. All we know is that they are sympathetic to the position, as are the Lib Dems. Opting out of NICs would be a large step.”

He concluded: “We are not trying to avoid taxation, we are looking for a fairer, more transparent system.”

On Monday, Shadow Chancellor George Osborne announced plans to waive employers’ national insurance contributions for any businesses starting up within the first two years of the Conservatives taking office, if they win. This concession will apply only to the first ten members of staff taken on by each of these new companies.

With regards to how this may effect contractors, tax experts have commented that this move is unlikely to be of benefit. As it stands employers’ NI contributions are levied at 12.8% of the employee’s salary. While a contractor working through a limited company must pay these contributions on his own salary and anyone else he employs, questions have been raised as to whether or not said contractor could wind up this limited company and set up a new one.

However, experts have been quick to denounce this idea. Speaking to Contractor UK, Tony Harris from Contractor Money, said: “In reality this will only benefit those contractors who are currently inside of IR35. IN almost all cases, anyone outside of IR35 would be likely to draw a low NI-able salary in the first place so this news will be largely irrelevant for them.”

He continued: “It’s also my understanding that Osborne made no mention of scrapping the planned increased in employers’ NI contributions (which are set to rise by 0.5% from 2011) so current contractors will have little to cheer about from this announcement.”

Meanwhile, PCG policy adviser, George Anastasi stated to Contractor UK: “Our understanding is that this is a measure designed to increase employment and incentivise businesses to take on new staff. Therefore we are not sure this is intended to be of benefit to freelancers, or that it will apply to new freelancers. Naturally, we are seeking further clarification on this, but we don’t at present believe it will apply to our members.”

All eyes are on Britain’s major political parties as we count down to next year’s General Election. Top of the agenda for contractors is where their issues will feature on manifestos. The Conservative Party have stated that, should they win, they would delay the implementation of the Agency Workers’ Directive until December 2011.

Anne Fairweather, head of public policy at the Recruitment and Employment Confederation (REC) spoke to The Recruiter at the recent Conservative Party conference in Manchester. She said that Jonathan Djangoly, shadow minister for corporate governance and business regulation had stated that the implementation of this directive would amount to £40 billion for British businesses over the next ten years. This has been the main reason given for delaying implementation.

Chief Executive of REC, Kevin Green, commented: “The REC has been calling on the government to delay implementing this directive until the last possible moment in 2011. We are pleased to see the Conservative Party recognises that the cost of getting the implementation of this directive wrong could be huge. It is vital that the labour market recovers before the regulations are implemented. This will also give recruiters and their clients the time to plan how best to ensure that equal treatment after 12 weeks works in practice. This is a complex issue and by waiting until December 2011, we can ensure that we minimise the adverse effect of this legislation on jobs.”

The Leader of the Conservative Party, David Cameron, is urging the government to select IT contractors from a wider range of sources, rather than always awarding contracts to large technology companies, such as Capita. He said that these jobs should not always be reserved for “the big players” and that smaller outfits should also have the opportunity to provide these services for the government.

During a speech in London, Mr Cameron said that these smaller outfits may well be voluntary groups or small firms but either way they would typically be “inventive and doing exciting things.” Mr Cameron’s speech backs up the Conservative Party stance on freeing the government and, indeed, the marketplace from “monopoly supply” situations.

He continued, “At the moment in the civil service there’s a sort of mentality of ‘no-one got fired for giving the contract to Capita. We’ve got to have a culture that’s a little bit more experimental and is prepared to take a leap sometimes with a small organisation.”

George Osborne, Shadow Chancellor, spoke in January of plans to open up the Whitehall’s IT outsourcing in a move which he claimed would save £600 million per year and would result in a “better IT deal for the taxpayer”. His plan included large projects being divided into smaller, manageable pieces which could be individually sourced out, therefore several companies and contractors could be working on the same project instead of the contract being awarded as a whole to one large company.

Jonathan Djangoly, Shadow Minister for Corporate Governance and Solicitor General has given an interview in which he discusses important contractor issues such as IR35, income shifting and the Agency Workers Directive.

Djangoly, who is also MP for Huntingdon, said, “The regulatory atmosphere for business has become totally over the top and it’s not just over-regulation but the very process by which government consults with business.”

Djangoly stated that the IR35 is on the Conservative Party agenda and would be looked at closely by a Conservative government. He commented, “We have to ask whether we should simply scrap IR35 and return to pre-2000 conditions, or whether we should amend the legislation. We are aware that there will be unintended consequences if IR35 is simply scrapped, with nothing to replace it.”

Djangoly confirmed that he is in contact with the stakeholders of the Agency Workers Directive. With regards to this hot topic, he had this to say: “We have accepted that the deal is done and the Agency Workers Directive will be put into law. The reality is that different organisations have very different views on its implementation. However, the one thing that very nearly everyone agrees with is that we should be calling for a delay in its implementation. This is for two reasons. Firstly, with the current economic climate, it is the wrong time to introduce further regulation that increases costs for business.”

On the issue of income shifting policies, Djangoly said that the current Labour government has yet to indicate whether or not they will be introducing income shifting legislation into this session of parliament. The conservatives stance is that “these would constitute yet another tax increase and place an increasing regulatory burden on small businesses.”

He continued, “And secondly we should wait to see how other countries implement the directive first. The UK will be the country most affected by the directive, so why should we be the first to implement the legislation?”

Djangoly has provided an insight into how the current regulations and policies may develop if we has a Conservative government but only time will tell if the Conservative Party will win the next General Election and, if so, how his comments will be put into practice.

Source: Contractor Calculator