On 20 March 2013 the UK Chancellor, George Osborne, announced his 2013 Budget. His opening lines were “Mr Deputy Speaker, this is a budget for people who aspire to work hard and get on. It’s a budget for people who realise there are no easy answers to problems built up over many years. Just the painstaking work of putting right what went so badly wrong. And together with the British people we are, slowly but surely, fixing our country’s economic problems.”
Summary of how this Budget affects contractors
Similar to 2012, by and large, contractors should be pleased with the announcements made as part of this Budget. In the main, it is very much a case of business as usual, however with the strong focus of this Budget on rewarding businesses and workers, contractors should at least take heart that this Budget will help kick start the UK economy, and so open up more contracting opportunities in the job market.
IR35 remains largely as it is. Following on from the Ed Lester debacle (CEO of the Student Loans Company operating through his own limited company), Mr Osborne confirmed an amendment to existing IR35 provisions will be made to equalise the tax and National Insurance treatment of office holders – that is, contractors who are working through their own PSC, AND are also a director of the client they work for (that client usually being a large public company). The amendment will be made in the Finance Act 2013.
While this has resulted in a lot of commentary within the accounting/tax world, we don’t expect any of our clients to be affected by the change.
The small profits rate remains at 20% (where company profits do not exceed £300,000). The main corporation tax rate for larger companies falls to 23% effective 01 April 2013, in 2014 it drops further to 21&, and by April 2015 it is expected to be 20%. These faster than previously expected drops in the company tax rate will give the UK one of the lowest corporation tax rates in the western world from 2015. Osborne said: “I want to send a message to anyone that wants to set up business here, or create jobs here, that Britain is open for business.”
Personal allowance will be £9,440 from 06 April 2013, and next year it will increase to £10,000.
For most contractors, these increases are more than offset by the lowering of the higher rate threshold (£32,010 in 2013/14) on earnings not exceeding the higher rate earnings threshold. For the 2012/13 tax year contractors could take home £38,996.70 in salary and dividends while keeping their personal tax liability at £0 – in 2013/14 this decreases to £38,053.80
As previously announced from 06 April 2013 the 50% additional rate of income tax will reduce to 45% , and the dividend additional rate will be reduced from 42.5 per cent to 37.5 per cent.
It stands for General Anti-Abuse Rule – and it will be introduced from July this year. It was announced as ”one of the largest ever packages of tax avoidance and evasion measures presented at a Budget” which is fairly accurate. For the contractors market, we can expect to see it even harder for offshore companies to put together a compliant structure for saving tax. We have always sounded various warnings about working in the UK via an offshore intermediary – the GAAR adds another level of complexity for them now, and puts further risk (read: liability) on the contractors shoulders.
Entrepreneurs Relief, and Closing Down your Company
There have been no changes in this area. This remains an attractive form of tax relief when looking to close down your company.
Statutory Residency Test
As planned the new Statutory Residency Test will be effective from April 2013. This is aimed to give clearer guidance, and a more robust test, to ensure the residency status of individuals can be more easily determined.