The Chancellor of the Exchequer, George Osborne, will deliver his first Budget later today. It is expected that he will detail the tax rises and spending cuts which the coalition government plan to initiate in order to recover the £153bn UK deficit. There are some specific expectations from this Budget which will have a direct impact on contractors.

IR35

Treasury ministers have already confirmed that more information of the fate of IR35 would be confirmed in due course. Ernst & Young, speaking to Contractor UK, commented: “The proposed review of IR35 is likely to take the form of a consultation document. While a simplification of the provisions would be welcome, there remains a significant tax disparity between carrying on business within a small company and being self-employed. As such, the tension between tax avoidance and administrative burdens is likely to continue at least in the short-term.”

Capital Gains Tax

The expected rise in capital gains Tax has already been confirmed by the new government. It will be increased in line with income tax. High earners will be subject to CGT at a rate of 40% but relief for business assets is expected to remain. The only factor which is, as yet, unclear is when the rise will be implemented.

VAT

Currently VAT stands at 17.5%, however across the EU the average for VAT rates are between 19% and 21%. It could be a possibility that the UK rate is risen to 20% in line with the rest of the EU. However, it is likely that such a rise would be phased in over several years.

Corporation Tax

In the Conservative manifesto they stated their commitment to reducing corporation tax to 25% while further reducing the small companies’ rate to 20%. Since the Liberal Democrats’ manifesto also discussed reductions it is likely that today’s Budget will announce these reductions.

NICs

Employers’ contributions to NICs for those earning £20,000 and above will increase by 1% as proposed by the previous Labour government. However, the NIC threshold for employer contributions is also likely to increase.

Cuts in Public Sector Spending

The Chancellor is likely to announce cuts of between £30bn and £60bn in the public sector. Wages will be frozen over the next year although many public sector workers are likely to face pay and pension cuts. Speaking to Contractor UK, managing director of Parity, Alan Rommel, stated: “ Big IT projects will be stopped where they don’t drive future efficiencies. Several bodies are scheduled to close where duplication occurs or integration can support savings, while projects that don’t demonstrate big returns may also be cancelled.

He concluded: “But hopefully the front line impact will be minimal and efficiency drives the savings. Potentially IT will be required to drive those savings and, if permanent headcount is restricted, the contract market could be required to deliver the skills to generate the savings.”

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