Three things PSC contractors want from today's Budget
Contractors who run their own limited company will be hoping for continuity and stability when George Osborne delivers his first Budget as chancellor of a Conservative majority government later today, writes Derek Kelly, managing director of ClearSky Contractor Accounting.
Yes, that’s right – it’s Budget time again. Less than four months since Mr Osborne addressed the House of Commons in a piece of pre-election theatre, the MP for Tatton will be at it again today, Wednesday July 8th.
So what can ‘Ltd’ contractors expect from the so-called ‘emergency’ Budget? Leaving aside pigs-might-fly outcomes such as huge tax breaks and an end to IR35, here’s a realistic three-point wishlist that I think will resonate with many.
1. No nasty surprises
First and foremost, I think contractors will be praying that the Budget doesn’t contain a sting in the tail. As any politician or political strategist worth their salt knows, the first Budget after an election is the ideal time to introduce tax hikes. Not only does the new government feel emboldened to make tough decisions, having been given a strong mandate from voters, the next election is also a long way off. The calculation is that, by then, those unpopular changes will be a distant memory.
The Tories’ manifesto pledge to freeze income tax, national insurance and VAT has left Mr Osborne with limited room for manoeuvre when it comes to generating much-needed tax revenue. This has raised the spectre of new taxes being introduced and existing reliefs being removed. Likely changes to Entrepreneurs’ Relief and Capital Gains Tax would negatively impact contractors looking to extract cash from, or close down, their company in a tax-efficient manner.
Contractors will also be hoping they don’t get caught in the crossfire of the chancellor’s latest crackdown on tax avoidance and evasion. With the Conservatives committed to raising £5bn by “cracking down hard on tax avoidance and aggressive tax planning by the rich”, there is a danger that high-earning independent professionals could end up as collateral damage. Meanwhile, more details are expected on planned reforms to travel and subsistence (T&S) expenses for umbrella company contractors – reforms that could potentially affect personal service company (PSC) owners too.
In each instance, we must hope that the government’s actions match the rhetoric around its ‘long-term economic plan’. Mr Osborne must look beyond any immediate boost to the Treasury’s coffers and choose instead to encourage and support independent professionals who – lest we forget – have performed such a vital role in the UK’s economic recovery.
2. Support for key industries
Contractors with clients in the financial services sector would benefit from any moves to make the UK bank levy less punitive. It may be a tough political sell for the chancellor, but after almost a decade of banker bashing isn’t it time that we all moved on? The UK’s financial services industry is a rich source of assignments for contractors with expertise in everything from cyber security to data analysis. Any sweeteners for our unpopular but vital banking industry would be welcome.
Five years after Mr Osborne heralded the “march of the makers”, the job of rebalancing the economy by boosting manufacturing and engineering is far from complete.
Contractors working in manufacturing, from ‘front-line’ professionals such as project managers to those working in back-office functions such as IT and telecoms, will be hoping that the CBI’s call for the £250,000 Annual Investment Allowance to be made permanent from 2016 is acted upon. Meanwhile, some commentators predict an announcement of further support for life sciences – a sector that has an enthusiastic supporter in Mr Osborne, and is proving an excellent source of assignments for many of our contractors.
3. Certainty over IR35
No pre-Budget article would be complete without a reference to every contractor’s favourite (!) piece of tax legislation. With self-employment tsar David Morris announcing recently that he would “like to tackle IR35” in the coming months, speculation has been growing in some quarters that today’s Budget will bring news.
Whatever happens, the last thing that contractors want is for the IR35 goalposts to be moved. Our clients tell us time and again that they value certainty and stability above all else. They want to know what the rules are, so they can abide them. A move to clarify IR35 through tweaking could work but, as I have argued before, what’s much more important is better education and enforcement of the rules as they stand.