Budget 2009 - What does it mean for contractors?

[tino]

Well, excepot for the fact that the 50% is only on income above 150K, so you'll never get less than half.

cukoo cukoo cukoo

[JSA Services Limited]

Somethings you might like to know....

On the surface Alistair Darling’s budget appears relatively “harmless”. However as a contractor there are a few key points, which you might like to be aware of:

Income Tax Rates & Allowances
As most people will have noted by now yesterdays budget saw the introduction of a new 50% rate of tax for those earning over £150,000. In addition the Government are also planning to remove the personal allowance (the amount you can earn before you pay tax) for those whose earnings exceed £112,500 and this will be done on a sliding scale so anyone earning in excess of £100,000 per annum will be affected. Both of these changes are due to take effect from April 2010 and signal the beginning of a far more hazardous tax landscape for the UK’s higher earners.

Pensions
On top of this the Government will also be restricting pension relief to 20% for those with incomes in excess of £150,000 and to further rub salt in to the wounds will be launching anti-avoidance rules to stop individuals making large contributions to their pensions to compensate before the legislation takes effect in April 2011.

Income shifting
From an Income Tax perspective there is one piece of good news as the Government have restated their position on Income shifting, the practice – in Government eyes - of shifting the income of one business partner to another to reduce the tax burden, and confirmed that no legislation will be launched in the foreseeable future, however they have made it known that they will keep this under review meaning the likelihood is that this isn’t the last we will be hearing of this.

VAT rates
As we all know in December 2008 the VAT rate was reduced to 15% in a bid to get us all spending again however this was only ever a temporary fix and the Government have confirmed that from the 1st January 2010 the standard rate of VAT will revert to 17.5% just in time for the January sales.

Final thoughts
One other interesting point, which came out of yesterday’s budget, is the Government’s obvious desire to extend HMRC’s powers and allow them to pursue those who they deem to be cheating the system, with a new level of ferocity. Measures announced include a New Disclosure opportunity for those with off shore bank accounts giving holders the chance to disclose, of their own accord, if they owe HMRC money and in addition HMRC are also likely to be given powers to name and shame individuals who are deemed to have deliberately understated tax in excess of £25,000.