The time to tinker has passed by Paul Gough

Self Assessment Tax Returns

George Osborne’s Budget announced his five year plans to phase out Self Assessment Tax Returns for individuals and replace them with a single digital tax account. Sounds like simplification at its best! I am delighted that the Chancellor is content to expect taxpayers to embrace responsibility for a role currently performed by professional advisers.

To desire the accurate collation of information about income and allowances applicable to individuals in a central, secure, digital account is not without merit. But is it realistic? Are we more likely to get this from HMRC or the tooth fairy assisted by the Easter bunny?

I delight in the thought of banks and investment houses automatically disclosing interest and dividend income from an ‘electronic tax voucher’ linked to the digital tax account of taxpayers. I can even imagine a time when employers accurately return earnings figures (under RTI style reporting), into a system under the control of HMRC that is ready in time to meet the reporting dates and successfully ‘does what it says on the tin’.

In the unlikely future event that workers are allowed to claim tax relief on any expenses they incur in travelling to or from a place of work, or in the performance of their duty, then I’m sure that it’s possible this suite of simplifications can be combined in an unambiguous easy to use, infallible Government system. It would be a new system without uncertainty; a system of clarity and precision; one that is equitable to all and truly does ‘level the playing field’. But is this probable?

Am I merely being a Luddite with no ability to clearly see the future? Looking back over the last few years I can see a host of employment status related legislation that does not fill me with confidence. Failed attempts at simplification which make me think that whatever the Chancellor dreams of, tax advisers will continue to be very busy as they help prepare and submit personal tax information for others.

Tell the office no holidays …… I suspect the same is true for HMRC.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

“The Budget for Britain: the comeback country”

The Budget for Britain

In Monday’s blog we looked ahead to what we thought this week’s Budget might bring for contractors and freelancers. Osborne had already made it clear that there would be “[N]o giveaways, no gimmicks, a Budget for the long-term” and it certainly proved to be a steady Budget. Yesterday the Chancellor was at pains to stress that the UK is experiencing true national recovery, and with the highest rate of employment in history and businesses being backed, the Coalition is confident their measures are making work pay.

A Budget that “backs small business owners”?

So what does yesterday’s announcement mean specifically for contractors and freelancers…

Income Tax personal allowance

Back in the Autumn the Government announced that the Income Tax personal allowance will increase to £10,600 as of April 2015. This means the basic rate limit will be £31,785 and therefore the higher rate threshold above which individuals pay 40% Income Tax will be increased to £42,385. The personal allowance will rise to £11,000 by 2016/17 with the higher rate subsequently rising to £43,000.

National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold. The basic, higher and additional rates of Income Tax for 2015-16 will remain at their 2014-15 levels.

Capital allowances

It had been expected that the Chancellor might announce an extension to the £500,000 limit to the Annual Investment Allowance due to fall back to just £25,000 on 1 January 2016 but this didn’t materialise in yesterday’s Budget.

Travel and subsistence claims for workers engaged through Employment Intermediaries (Umbrella companies and possibly PSCs).

The 2014 Autumn Statement announced that the Government would review with the intention of restricting the use of overarching contracts used by some temporary workers, and their employers to claim tax relief on travel and subsistence (T&S) expenses.

Yesterday’s Budget revealed that, with effect 6 April 2016,  Government intends to implement the conclusions of a consultation which is likely restrict T&S relief for workers engaged through an employment intermediary, such as an Umbrella company or a personal service company, who are also under the supervision, direction and control of the end user. They intend to force Employment intermediaries to provide workers with greater transparency on their terms of employment, including what they are being paid.

The springboard for these plans has arisen as HMRC seek to level the playing field between employment businesses that lower their costs by taking advantage of these arrangements, and those that don’t. But Osborne did say that the Government would continue to protect those genuinely self employed.The period of consultation will determine the finer details of the eventual proposals to restrict tax relief and we’ll post more about what that means for our clients as the plans unveil.

What else is there for contractors and freelancers in this year’s Budget?

Well, there are some ups and some downs for contractors with a range of benefits and penalties coming out of this Budget. The announcements to help savers will benefit most contractors and Osborne mentioned several times that this Government have made sure it pays to work. And with planned investment in infrastructure across all parts of the UK, this will be welcome news for contractors, especially in the North and South West.

Other headlines contractors will be interested in 

  • The annual Self-Assessment Tax Returns (SATR) will be abolished and replaced by online tax accounts. Osborne cited that the self-employed should be working for themselves, not the taxman. This news was particularly welcomed by IPSE, the Association Independent Professionals and the Self Employed who welcomed “a more flexible returns system to replace the current outdated model”.
  • Government will review Entrepreneurs Relief (ER) and this could impact on how contractors can extract cash efficiently from their Limited Companies.
  • A new personal savings allowance means the first £1,000 of savings income will not be taxed.
  • A fully flexible ISA that won’t penalise savers for withdrawing their own money or replacing it throughout the year.
  • A new Help to Buy ISA meaning first time buyers will get £50 from the Government for every £200  they save.
  • Tax relief on lifetime pension pots will fall from £1.25m to £1m but will be indexed from 2018 to protect those in place.
  • As predicted, investment will be made into the oil and gas industry, creating jobs for contractors in that field. The Chancellor stressed the importance of taking action in this area to protect the future of the industry.
  • TV, film and gaming tax credits will benefits contractors and freelancers working in the UK’s creative sector.
  • The freeze on petrol prices promises “£10 off a tank with the Tories” while alcohol duties will be cut.

Osborne hailed this as “[T]he Budget for Britain: the comeback country”. Will yesterday’s announcements make the sun shine for you? Let us know your thoughts.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

“No giveaways, no gimmicks, a Budget for the long-term” – but will the 2015 Red Box budget for contractors and freelancers?

Will the Red Box budget for contractors and freelancers?

The Budget is this Wednesday and in true pre-Election fashion it is unlikely it will be full of radical announcements.

I predict it will consist of Osborne telling us what he thinks we need to hear and not what he really intends to do, if he still has his job in the second week of May.  Could we be looking at two Budgets in one year?

The Conservatives billed themselves as being ‘the party of small business’ but, in reality, very few independent professionals will have felt any benefits from policy changes. In fact, the Government could be criticised for not delivering enough to empower freelancers and contractors. In the final pre-Election Budget it is uncertain, but also unlikely, that contractors will see significant changes in Osborne’s statement.

A number of tax changes have been announced already and have been under discussion. To the extent that they are not contentious, or at least acceptable to the other major political parties, they will be included in the Finance Bill and will be enacted before the end of this month.

The main, eye catching, announcements are likely to be changes which the Chancellor would like to make in the next Parliament if the Conservatives are in power, or are a member of a Coalition, in that Parliament; as there will then be less than six weeks of campaigning before the Election on Thursday 7 May.

The tone, and content, of the Budget is going to be highly political and will have a strong influence on the campaign not least because the Chancellor is the key strategist of the Conservative party. We know that contractors and freelancers are the lifeblood of the UK economy and they have an important role in rebuilding the economy. Inevitably there won’t be many people whom the Budget doesn’t affect one way or another so we’ve picked out some of our predictions that will be of particular interest to freelancers and contractors.

What is likely to come up in the Budget 2015 specifically affecting contractors and freelancers?

More measures to tackle tax evasion and tax avoidance

We can definitely expect that more tough measures will be announced, for next Parliament, to provide criminal sanctions for tax evaders and their advisors, whatever their role. Initiatives such as a ‘diverted profits tax’ targeting multinational companies who have been judged to have shifted profits overseas to avoid tax are expected to be implemented.

Support for key industries

It is expected that Osborne will unveil measures to support the North Sea oil and gas industry which will be welcome to many contractors who work in this industry, from engineers to IT specialists and finance professionals. It is hoped that a boost to British manufacturing will help rebalance the economy and protect the livelihood of contractors already in the industry while creating demand for their skills.

Tax simplification

The Office of Tax Simplification (OTS) has suggested many changes in a variety of areas that have previously been adopted but it has suffered from a lack of resources and is due to wind up at the end of this Parliament. The Chancellor may decide to put the OTS on a more permanent footing and properly resourced if the Conservatives win the election. If so we can expect more changes to arise in the coming Parliament to simplify taxation especially for small businesses and individuals.

Travel and subsistence claims for Umbrella workers

This is still high on the political agenda but the highly anticipated clampdown on travel and subsistence (T&S) expenses may not happen in this Budget. The concern was originally raised by MPs accusing Umbrellas of exploiting workers but FCSA disagree and have plead to MPs that imposing these proposals would threaten the £2.8bn of income tax and National Insurance Contributions generated by Umbrella service providers  HMRC have already stated that “any proposed measure to address this misuse will not come into effect until 2016 at the earliest”.

We can expect a restriction rather than a removal of tax relief for workers, with a curtailment of T&S expenses more likely from April 2016. The Chancellor’s statement last Wednesday, following the closure of HMRC’s consultation, will “inform the government’s decisions at Budget ‘15 on how best to address this avoidance.”

Personal Allowances and income tax thresholds

The Allowance for the average person went up from £6,475 to £10,000 over this Parliament, and the Autumn Statement announced an increase to £10,600 from 6 April 2015. A further increase is possible, perhaps by an additional £200, but unlikely, although there are hints that the Chancellor may announce future target increases.

It’s possible that the Chancellor may extend the basic rate threshold so that, allowing for allowances that the basic rate band moves closer towards an intended goal, announced in the Autumn Statement, of £50,000.

Inheritance Tax

Inheritance Tax is currently levied at 40% on estates worth £325,000 and above. There are hints of a return to the promise of increasing the Inheritance Tax nil rate band to £1 million and clarifying if the limit is per person or per married couple or civil partnership. It is thought Osborne will announce plans which involves the person inheriting rather than the deceased’s estate, being taxed. This would be popular among high earning professionals including contractors who may currently view Inheritance Tax as an inhibitor to aspiration and ambition.

Entrepreneurs’ Relief

The cost of Entrepreneurs’ Relief (ER) in 2013/14 is £2.9bn: three times higher than HMRC’s estimated cost. Unexpected changes were announced in the Autumn Statement and it is possible that further announcements on ways to limit ER will arise.

Capital allowances

The Annual Investment Allowance is currently £500,000 but is due to fall back to just £25,000 on 1 January 2016. It is possible that the Chancellor may promise to extend the £500,000 limit if the government is re-elected.

Research and development tax credits

Changes to the system for claiming research and development R&D tax credits were announced in the Autumn Statement introducing a new advance assurance service for small companies from the autumn. Further assistance may be announced to help small companies undertaking R&D perhaps in simplifying the definitions of applicable costs.

Pensions and pensioners

The Prime Minister has announced that he wants to protect pensioner benefits. But there may be announcements about tax relief for pension contributions and limiting the contributions possible or the scope to only basic rate tax relief.

Watch this space

It is hoped that the 2015 Budget will finally address the realities faced by the freelancer and contractor community.The Federation for Small Business has been calling for policies to help small businesses grow, through tax reforms and sensitive changes to Minimum Wage rules. Of course Osborne needs to leave some rabbits in the hat for Wednesday and it may be that initiatives such as a further reduction to Corporation Tax (which would be welcomed by Limited Company contractors) are saved for the Conservatives’ Election manifesto.

Whatever happens in the 2015 Budget, we’ll publish our views on what it means for contractors after the announcement. Make sure you follow us on social media for the latest updates:

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What do you hope to see in this year’s Budget?

While we wait for the Budget, are you ready for the 2014/15 tax yearend? Download our new guide and get the most from being a contractor.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.