 |
|
| CURRENT SECTION :: News | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
|
 |
UK IT contractors should “cautiously” embrace Gordon Brown’s willingness to review the tax and national insurance system as it applies to freelance companies, the Professional Contractors Group (PCG) has declared. Unveiling his tenth annual Budget, the Chancellor yesterday admitted review of the tax regime is necessary for the UK to retain its global status as a “leading business location.” Welcoming the move, the PCG’s Simon Juden said the much-needed scrutiny would offer an “opportunity” to address the complex taxation of freelance consultants and contractors, including ambiguous tax rule IR35. “We look forward to engaging positively with the government on these issues, as we have long campaigned for consistency, clarity and common sense in the taxation of freelancers,” he said. However, buried in the Budget’s finer print, the government says any review will accompany new powers to tackle those who hide employment income by drawing dividends, in order to take advantage of the 19 per cent small business tax. “Since the Pre-Budget Report, further evidence has emerged that employment income is being disguised as dividends in order to take advantage of the small companies’ tax rate, often encouraged by promoters of mass-marketed managed service company schemes. “There is also evidence of some agencies, contractors and employers requiring workers to use corporate structures, thereby denying them employment rights as well as avoiding paying their fair share of tax and National Insurance Contributions (NICs). “The government believes that all individuals and businesses must pay their fair share of NICs and tax, irrespective of legal form,” states the Full Report of Budget 2006. Leading business advisors told Contractor UK such a statement could be the final warning, before HMRC clampdowns on the tax-efficient structures used by IT contractors to source their income. “Potentially under challenge are composite companies, umbrella companies, payment split via salary and dividend and payment split via partner dividend, as in the case of Arctic Systems,” explained Roger Sinclair, legal consultant at Egos Ltd. “The Chancellor is looking for soft targets – giving more employment rights cost the employer, while paying less tax and NICs cost the government.” Anne Redston, of the Chartered Institute of Taxation, draws attention to the Budget small print which announces a consultation on the tax and NICs position of managed service companies. “This is the first sign that the government is considering the tax policy issues raised by composites/umbrella companies/managed service companies separately from those of limited companies set up for one worker, or a small number of connected individuals. “These companies are widely used to supply individual contractors to big companies in the UK. HM Revenue & Customs is concerned that these companies are avoiding - or evading - income tax and NICs, and has announced that it is consulting on new rules to prevent this,” Ms Redston said. Yet reflecting on the Budget’s implications for independent professionals, David Wilsdon of SJD Accountancy said the bad news for limited company professionals actually came in December’s Pre-Budget Report. “The main changes for owners of limited companies… were confirmed in the Budget today. Namely, from 1 April 2006 a ‘simplification’ means that corporate profits of less than £300,000 will be taxable at 19 per cent regardless of payment of dividends. “Previously, reduced corporation tax rates could apply if profits were less than £50,000 and were not paid out as dividends,” he said. Under the plans, SJD said small companies stand to “benefit” from an increase in first year allowances, which have climbed from 40 per cent to 50 per cent of the cost of assets purchased on, or after 1 April 2006. Budget 2006 also revealed that company directors and individuals will face compulsory online filing of VAT, PAYE and Tax forms by 2008. This will be accompanied by another surprise later in the year, in the shape of tighter deadlines for filing self-assessment tax returns. Anne Redston explained, “The government's Carter review of HM Revenue & Customs' online services has recommended that all paper self-assessment returns must be received by the end of September - instead of 31 January as is currently the case.” More positively for affected IT firms, software houses and research companies, the government has improved the R&D tax credit by opening it up to ventures employing up to 500 staff. To support the initiative, a new specialist R&D unit will be set up to deal exclusively with SME claims by the end of 2006. But to counterbalance the generosity to the IT sector, employers will no longer be able to loan computers to company employees free of charge. Instead, all new loans for computers from April 6 will attract an instant tax charge of up to £200 per employee, plus national insurance. Responding to the news, Intellect, the hi-tech trade body, said it was “dismayed” the tax exemption under the DTI’s own Home Computing Initiative would be axed. Tom Wills-Sandford, deputy director-general, told Contractor UK: “The Treasury should have taken the opportunity to engage in a formal consultation process to fully assess the benefits of this scheme “The HCI is one of a series of important measures in place under the banner of the Government’s Digital Strategy, which helps tackle the digital divide for employees on lower incomes. To date, the initiative has successfully driven uptake of home computers and has played a useful role in widening digital inclusion.” In a statement, the Chartered Institute of Taxation backed Intellect’s appeal, warning that limited company contractors should look out for the new rules. It added,” [They] impose a tax charge on home computers provided by the limited company, and to restrict the number of mobile phones which can be provided tax-free to one per employee, and none for family members. Mobile phones for kids on the business are now history.” So as computers become less ubiquitous in small to mid-sized firms where IT is outside the core business, their presence in front of pupils will accelerate. Chancellor Brown wants every school across the country to display “world class IT” systems, with a view to training up the next generation of highly skilled workers. He also pledged to invest £180million to allow the UK “discovery and development” of cutting-edge technologies. A separate injection of £50million will go into microgeneration technologies, which enable homes and businesses to generate their own renewable energy. Brown added an accompanying £1billion will boost medical research technologies, drafted to coincide with an annual investment of £1.5billion each year for scientific discovery. Furthermore, a streamlining of the research funding process will ensure capital is sent directly to Universities, with the aim of eventually creating a greater number of technology ‘spin off’ companies. In one of the many political statements made in yesterday’s Budget speech, Brown explained why so much expenditure has been diverted to education. “Because to meet and master the global challenge, the most important investment in our economy and in our future and the most pivotal and important reforms we can make will be in the education of our children and young people. “I, like so many, am grateful for the inspirational teachers and the high quality of education that I received.” The Chancellor, who famously declared the ‘only company that came to speak to us when I was at school was the National Coal Board,’ delivered a Budget that was fixated on the need to update skills. “Today the British economy has just 9 million highly skilled jobs. By 2020 it will need 14 million highly skilled workers. And of 3.4 million unskilled jobs today, we will need only 600,000 by 2020.” Elaborating, he added, “Employers rightly tell us their greatest long-term need is a skilled flexible labour force. And with the typical worker changing jobs seven times during a working life, investing skills and the ability to re-skill will make Britain the most flexible economy of the future.” Mar 23, 2006 Email this article Printer friendly page Previous Page
|
|
  |
||||||||||||||||||||||||
| All content © Contractor UK Limited | http://www.contractoruk.com/lists/?p=subscribe&id=1[Register for News Letter] | [Privacy Statement] | [Terms of Use] | [Top of Page] |