Tax update for contractors

Chris James, Director of Accountancy Services, summarises the key tax changes and issues affecting contractors now:

 

 

Assuming the betting markets are right and Liz Truss becomes the new PM next week, what can contractors and the wider SME community expect from an emergency and / or ‘normal’ Autumn budget (pencilled in for the 14th or 21st September, and / or November, respectively – we may well get both)?

 

• Corporation tax – most trailed is a delay or abandonment of the scheduled increase in CT, which otherwise would lead to a marginal rate of 26.5% for those with one trading company with profits between £50k and £250k from April 2023. It would be hard for Truss to back out of taking action on this measure now.

 

• National insurance – will the 1.25% increase be dumped as discussed? When? What about the rise in thresholds (during a payroll year) that had an opposing effect? And if the 1.25% is dumped, what about the Health and Social Care Levy due in April 2023 – which replaces the NIC rise, and is the same size? Hard to see how to unravel this in headline-friendly terms.

 

• Dividend tax – when the NIC increase went in, an increase in dividend tax was quietly put through at the same time. I doubt this will be reversed, as it just didn’t, and won’t, get the necessary coverage. PSC contractors will feel stung once again.

 

• IR35 and other reviews – we’ll see. Nothing decisive will happen quickly on this, but let’s hope some action follows the promises in due course. It would be good for UK business generally if a far-sighted, meaningful plan promoting freelancing, small business and entrepreneurship materialised. I’d love to see one.

 

• The cost of living crisis and energy – this is huge for businesses with premises (and of course for individuals at home). The costs are eye-watering, and most tax adjustments will be small by comparison. But whoever’s in charge will have to take some action. Labour have indicated they’d try to effectively take the problem away – but would that work, and if so, at what cost in the long run?

 

• VAT – VAT on home fuel (and a few small businesses) is already at a low rate, and the overall increases are not going to be wiped out by VAT changes. It’s often forgotten though that we all suffer VAT as individuals and normally can’t recover it (unlike most businesses) – so perhaps some action on the headline rate will get some good coverage.

 

• Income tax / other measures – under Boris Johnson we’ve had tax rate changes during payroll years, major tax policy announced outside budgets (HSC Levy) and endless reviews and consultations without a great deal to show for them. Also we’ve had a pandemic, Brexit (‘the story so far’) and a war. So, frankly, who knows what else might emerge – compared to ‘normal’, there’s more than enough in the way of excuses to enable an argument to be made for almost anything.

 

Whatever action is taken, even if it’s ‘short term’, there will be long-term implications for taxes, inflation, credit card debt, house prices and almost anything else you can mention. The new PM and Chancellor have an unenviable task…

If you have any queries about any of the issues raised in this article, please contact our contractor accountancy team on 01923 257257.