 |
|
| CURRENT SECTION :: News | |
|
 |
Concern over the scale of the recession Britain faces has saved IT contractors from the potential fate of imminent tax rises in yesterday’s Pre-Budget Report of £500million. Turning down a £300m tax-raising opportunity to legislate against umbrella companies, Alistair Darling said the rules governing their expenses would “remain unchanged.” Announcing more contractors’ relief, albeit definitively short-term, the Chancellor said legislation to enact ‘income-shifting’ proposals, due to net £200m, would be delayed. “Like the income-shifting proposals, the targeting of umbrella companies is a threat hanging over the contracting sector,” Simon Dolan, founder of SJD Accountancy said last night. “The state is saying ‘we don’t know what to do with these proposals, we don’t like them as they are, so we’ll put them on the backburner because we’ve got other things to worry about’.” To pay for a ‘fiscal stimulus’ of £20bn, he said Mr Darling could not raise it from contractors, so he had to offer “across the board” relief likely to show up in the macro economy. To this end, the Chancellor said he would slash VAT on goods and services to 15% from 17.5% from next Monday until the start of 2010, when it will return to its current level. The VAT cut, which is the equivalent of handing consumers £12.5bn, will fund the injection, alongside an increase in the income tax take from 40% to 45% for the highest earners. The package will also be funded by massively increased state borrowing - £78bn in the current financial year, then rising to £118bn in 2009/2010, or 48% of GDP, before peaking at 57% of GDP in 2013/2014. The budget will not be balanced until 2016. Yet like the newly proposed hike to National Insurance (by 0.5%) for workers and employers, the new band for top earners will not start until 2011, a year after the next general election. It is clear, then, that Britain’s ‘economic and political environments’ played their part in formulating Mr Darling’s decisions, said Martin Hesketh, managing director of Brookson. The firm said that even if new laws for umbrella and jointly-owned companies were put off thanks to such factors, the delay of the latter and potential to forego the former were both welcome. The PBR says the “current” rules for umbrellas will be used, though officials “may return” to build on them “if compliance does not improve,” providing what Mr Hesketh said was a “golden opportunity.” He explained: “From a contractor’s perspective, there will be a feeling that all parties now have their part to play. We’ve been given an opportunity to deliver a compliant marketplace which is what industry said it could do with the government’s help. “Now the onus is all the parties involved to drive up compliance standards…because the government is clearly saying that, if we do that, umbrellas can remain a sensible, beneficial way of working.” The PBR also says while it is “unfair” that people gain by “‘shifting” their income to their lower-tax spouse, no laws to address the issue will come in 2009, but it will be kept “under review.” The delay was necessary due to “current economic challenges.” Ex-tax inspector Kate Cottrell, founder of Bauer & Cottrell, reflected: “In the current climate, the emphasis is very much on small businesses and the major contribution they make to the economy. “With the announcements for all the help for small and medium-sized enterprises, the Chancellor could hardly then have thrown in income-shifting without creating uproar.” That aid package includes giving hard-up firms extra time to pay tax bills; a £1bn temporary funding scheme offering loans upwards of £1,000, plus £4bn in European-backed loans. Part of this offering of “real support, quickly,” for all firms means the rate of corporation tax will no longer rise to 22%, as proposed by Gordon Brown in 2006, but will stay at 21%. “Whilst the chancellor said he’s not going to raise corporation tax in line with what was said, even though it has still gone up 2%, he’s raising national insurance,” Mr Dolan reminded. “[Effectively by] 1% - half a percent on the employees’ side and half a percent on the employers’ side…I’m not sure that saying they’re going to a put off a planned tax hike helps anyway.” Reflecting on the move, the Professional Contractors Group, the trade group for freelancers, said its members gave a lukewarm response to hearing that the biggest corporation tax take was still incoming. John Brazier, its managing director, said: “The decision to delay the third of the successive rate increases instituted by Gordon Brown’s last Budget is barely a concession at all. “Small business owners will not be fooled – the government should have completely reversed this policy, which was a mistake to begin with.” The PCG also questioned the benefits of cutting VAT by 2.5%, a move business fears will cause administrative burdens, lost savings for wrong decisions and mistakes on returns. To reflect the rate drop, starting December 1st, contractors must amend their invoices, change the settings on their accounting software or ask their provider to if they cannot set the rate themselves. Contractors with queries should read new HMRC guidance, of which Appendix E states that IT consultancy or data processing workers on the Flat Rate Scheme charge VAT at 11.5%. “The VAT reduction will clearly benefit contractors from a personal perspective in terms of how much further their pound will go when they are in the high street,” Mr Hesketh said, “that shouldn’t be sniffed at.” But he explained it was optimistic to suggest Mr Darling, or anyone else in government, had contractors in mind in terms of which measures did and did not emerge yesterday. “Contractors are not a big enough group to drive policy making at this point in time, and therefore they may actually feel more impact from the bigger announcements made. “I don’t see this Pre-Budget Report as a statement that shows anybody in the government has been thinking about contractors as a population.” But Mr Darling’s pledge to help “all types of small business” through the recession, now due to last for the first two successive quarters of 2009, partly explains why contractors emerged unscathed. “To have done the two things which were on the agenda – which was travel rules for umbrella companies and income-shifting, would not have fitted with the rest of the PBR,” argued Anne Redston, visiting professor of tax law at London’s Kings College. “They have not said they are not going to do either of these, but they have put them on the backburner. For at least another year I would say contractors can go on in the way they did before.” Most contractors might welcome the PBR but should realise that measures for umbrella and jointly-owned companies are still “waiting in the wings…not thrown away and the probability is that they will reappear.” Ms Redston added it was right the government had decided not to act as “both proposals run the risk of being complicated to implement, and of catching many others, unintentionally, in the tax net.” Yet the PBR’s promise to umbrella companies that “HMRC will refocus its efforts to ensure that the current regime is properly applied,” indicates enforcement activity will rise. “Contractors going through umbrellas will be relieved, but a further warning shot has been fired and a clear statement [issued],” Ms Cottrell said. Bob Jones, also a former inspector for the Revenue, said the tax authority’s intent to make full use of existing legislation was a welcome declaration, albeit one that was long overdue. “At the end of the day it is what should have been happening anyway,” he said, reflecting the industry consensus that new laws are not needed to tackle abuse of umbrella workers’ expenses. “HMRC must shoulder some of the responsibility because of the lax dispensations that have been granted in the past - they are reaping a problem which they themselves have sown, so HMRC, get your act together - exercise care and control in the issuing of dispensations and weed out the non-compliant.” Mr Hesketh, of Brookson, reflected on what he said was a “strong” commitment from HMRC to focus on policing the existing laws to curb non-compliance by umbrella companies. “I think [this] is the best possible message they could send at this time,” he said. “Our opinion is that the established legislation is fine, it just needs strong enforcement. This seems to be where the Treasury has got to, and I hope they go on and genuinely do try to raise the sector’s standards.” Nov 25, 2008 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] |