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.