Many IT contractors will be feeling the effects of some of the announcements made in yesterday’s Budget. Alongside the Chancellor’s unveiling yesterday, a press notice titled ‘Protecting Tax Revenues’ was also released. This announced fresh attacks on offshore and payroll schemes that are designed to exploit loopholes in tax legislation. The press notice stated: “The government is taking further action to change the game for those seeking to bend or break the rules on tax.” To this end, legislation will be introduced from 6th April 2011.

Commenting on this development,’s Ray McMahon told Contractor UK: “There has been an increase in these schemes, which offer increased take-home pay by various methods, over the recent years. It appears ‘disguised payments’ is an area the government wants to tackle. Businesses have just over 12 months to consider whether to continue with these schemes”.

The notice also details plans by the government to take action on any other vehicles where employment income is not properly taxed. The Chancellor also made clear his determination to clamp down on those individuals not paying tax on their offshore gains and income.

Mr McMahon commented: “Where people have moved their money ‘offshore,’ HMRC will consider settlements with tax geared penalties which could be increased up to 150% or even 200% of the liability.”

Mr Darling also made it clear that he plans to stop any companies taking advantage of the double taxation treaties in this country by over-claiming tax relief. New measures will be introduced to combat this issue from the 1st April, including “principles-based approaches to protect Exchequer revenues.”

Schemes offering contractors maximised take home pay are also under scrutiny and stricter measures. The notice said: “ a measure countering avoidance involving the release of loans to participators by close companies [so]…close companies will be denied a corporation tax deduction for releases or write-offs of loans to participators.”

Mr McMahon warned: “This comes into force from today. [It will apply] where a director takes a loan from the company and then it is written off. Although there was a benefit and NICs to pay, it was considerably less than having to pay off the original loan.”

It is expected that this combination of measures on avoidance and evasion will raise an extra £1.5 billion, with an expectation of £4bn by 2012-13.

Many businesses will, however, be pleased to acknowledge that the Time To Pay facility will actually remain for the next five years.

Martin Hesketh of contractor accountancy firm, Brookson said: “”The Budget was quite friendly to business in terms of small and medium-sized enterprises, but it wasn’t particularly great for freelance or contractor companies. That said, the measure that seems directly to benefit contractors is the extension of the Time to Pay scheme, assuming contractors are in trouble with cashflow and need extra time to pay.”

HMRC have also confirmed that their Employer Compliance Review has been re-engineered. This is the route which is normally adopted during an IR35 investigation. Bauer and Cottrell stated: “HMRC say that they are on target to reduce audits and inspections by 15% by 2011. This is all clearly in line with the marked reduction in investigation work and IR35 cases over the last 18 months.”

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