Budget 2015: Contractors' Wishlist
Contractors hoping for a major pre-election boost from George Osborne shouldn’t hold their breath, but that's not to say they’re going to get a meaningless Budget this coming Wednesday, writes ClearSky Contractor Accounting managing director Derek Kelly.
A rabbit or two out of the hat?
Opinion is split on whether the chancellor will find sufficient fiscal ‘wriggle room’ to pull a vote-winning rabbit or two out of the hat when he rises to the dispatch box on March 18th.
Some commentators claim any such giveaway could actually be counter-productive politically, given Mr Osborne’s efforts during five years of coalition government to earn a reputation for economic responsibility and discipline.
Politics and taxes
The proximity of the general election will, of course, dictate the tone and content of this parliament’s final Budget. Any giveaways will require Liberal Democrat approval, and the key test for Nick Clegg and Danny Alexander will be whether they can claim at least some of the credit. Hence the expectation that the income tax personal allowance, already set to rise to £10,600 next month, will be increased by an additional £200 or so.
Tory business minister Matthew Hancock claims the Lib Dems are blocking plans for a ‘radical’ Budget. He has also hinted that a further reduction in corporation tax – a measure that would be welcomed by limited company contractors – will be included on the Conservative manifesto if it doesn’t make the cut on Wednesday.
Such manoeuvring serves as a reminder that, for the parties, the stakes could not be higher. Despite the various restrictions, it seems unthinkable that this politically-minded chancellor will leave his red box completely devoid of surprises and giveaways.
Expect residual benefits
Of course, if we’re honest with ourselves, support for contractors is hardly a massive vote winner beyond our sector. Pro-business measures are likely to be aimed at large corporates at one end of the spectrum and SMEs at the other, with only residual benefits for one-person limited companies.
So what can Britain’s growing army of contractors, freelancers and independent professionals realistically hope for from Mr Osborne? Here are three broad points I believe all limited company contractors would support:
No fresh upheaval over tax
Unlike some sectors and industries, I think the UK’s professional flexible worker population would be happy for the status quo with regard to taxation to be maintained. That means no extension of proposed changes to travel and subsistence expenses for umbrella company contractors to cover Personal Service Company (PSC) owners. It means no ill-thought out or knee-jerk policies that disadvantage contractors – unintentionally or otherwise – in the name of combating tax avoidance. Above all, it means more effective enforcement of current legislation such as IR35, rather than the creation of new rules that simply cause confusion and anxiety among honest and hard-working contractors.
The chancellor’s widely-trailed announcement of a ‘Google Tax’ targeting multinational tech companies’ diverted profits offers some encouragement that the government is now prepared to take action against the real tax villains. On the flip side, recent mainstream media coverage regarding the tax affairs of public sector contractors and public faces - BBC presenter Jeremy Vine - demonstrates that many people outside our industry still don’t ‘get’ contracting. and view the entire way of working as some sort of tax con.
If the final section of the last page of the Budget document does contain a ‘blink-and-you’ll-miss-it’ announcement that sends panic through the contractor marketplace, it wouldn’t be the first time. That’s why, come Wednesday, no news will be good news when it comes to tax. Better the devil you know, as they say.
Support for key industries
The chancellor is expected to unveil measures designed to support the beleaguered North Sea oil and gas industry by cutting, or even scrapping altogether, the unpopular supplementary charge on profits. Industry body Oil & Gas UK is also advocating the introduction of an investment tax allowance, which would tie tax to the level of profitability in an investment. Boosting the vital oil and gas industry at a time when it’s struggling would benefit the many contractors who depend on it for assignments, from engineers to finance professionals and IT/technology specialists.
Meanwhile, a demand by EEF, the manufacturers’ organisation, for easier access to the R&D tax credit and a full-scale review of the capital allowance system will no doubt find favour among contractors working in advanced manufacturing and engineering.
Boosting British manufacturing would help to rebalance the economy by reducing our reliance on consumer spending. It would also safeguard the livelihood of contractors already working in the industry, and create fresh demand for skilled, contingent professionals.
Cut Inheritance Tax
Speculation has been growing that Mr Osborne could finally deliver on his long-held desire to radically reform inheritance tax, which is currently levied at a rate of 40% on estates worth more than £325,000. Some commentators predict the chancellor will announce plans to replicate the Irish model, in which the person inheriting, rather than the deceased’s estate, is taxed. Any reform that amounts to a cut would be popular among high-earning professionals including contractors, who justifiably see inheritance tax as a brake on aspiration and ambition.