The 2014 Autumn Statement Review
On Wednesday 3rd December, Chancellor of the Exchequer George Osborne delivered his Autumn Statement, opening with a positive tone on the growth of the economy – achieving 3% vs the 2.7% prediction from earlier in the year, and moving on to cover the falling inflation rate – from 1.5% down to 1.2% alongside falling unemployment rates, with over half a million new jobs having been created this year.
He also stated that the end of the national deficit is in sight, albeit still quite a distance away – with a mission to half the overall deficit by next year. However, despite this positive outlook, he made it clear that there are still many difficult decisions ahead – and plenty of work to be done in order to clear the debt and continue with our economic growth.
What’s the impact for contractors?
Overall it seems that our economy is prospering, but what does this mean for you? There are numerous policy changes which should also have a positive impact on individuals. As promised in our Autumn Statement preview, we’ve gathered some of the key points and changes with the potential to affect contractors in the near future.
Change for Umbrella companies
Changes are on the horizon for Umbrella companies, affecting the contractors working under them. The use of overarching contracts by employment intermediaries and Umbrella companies will be reviewed and the outcome could affect contractors claiming tax relief when travelling to work in temporary locations – something which many of you are reliant upon in order to reduce your expenses. There will be a discussion paper published shortly, so watch out for more news on this topic.
On top of that, the Office of Tax Simplification (OTS) has recommended a halt to tax relief being claimed on reimbursed business when paid in conjunction with a salary sacrifice arrangement. There are a further 51 recommendations on the table from the OTS that the government is considering, details to be published in due course.
The government will also examine the use of Umbrella companies to deprive employees of basic rights, such as being paid the minimum wage.
There are also plans to change the legislation underpinning the penalties for late or non-submission of quarterly returns from employment intermediaries – due to go into effect in April 2015. Regardless of the outcome, it’s clear that Umbrella companies will be under the microscope in the near future.
The personal tax allowance is set to increase again in April next year, with the government announcing an additional £100 increase – bringing the new allowance to £10,600 in 2015. Those earning between £10,600 and £42,385 and therefore liable to pay income tax, will be a welcome £825 better off as a direct result of the increases in allowance between 2010 and 2015.
Clampdown on tax avoidance
Osborne announced new regulations which aim to restrict multinational corporations from avoiding tax. The ‘diverted profits tax’ will mean that companies moving profits abroad will be taxable at 25% by the UK government, putting an end to this method of tax avoidance. Unfortunately for contractors, this change could result in multinationals taking their contracts abroad in an aim to retain their profits – resulting in a reduction in contractor opportunities overall.
Simplification of employee benefits
Following on from its mention in the Budget earlier this year, further changes have emerged surrounding the simplification of the administration involved in employee benefits and expenses. New regulations will mean that, from April 2015, Limited Companies (as well as other employers) will be exempt from reporting on trivial benefits of less than £50. This is welcome news to small businesses, reducing the time and money spent on the administration involved with tax and expenses.
Investment in construction
Government plans include huge investments in infrastructure which is great news for the construction and engineering industry, and is sure to have a positive impact for contractors in the sector – providing an influx of new work and opportunities. Changes to the Construction Industry Scheme (CIS) will also mean a reduction in administrative burdens – allowing construction businesses to operate more freely.
For those who have company loans from close companies to individuals, trusts and partnerships, you’ll be pleased to know that there are no planned changed to the tax charges on these.
As announced on 21 July 2014, the new rules on flexible pensions to be effective from 6 April 2015 will continue. These rules allow individuals to take up to 3 small pension pots from non-occupational schemes, or an unlimited number from occupational schemes, of up to £10,000 as a lump sum without being subject to a reduced annual allowance of £10,000. We will also be able to take advantage of these from the age of 55 (reduced from 60) from April 2015.
Support for first time exporters
This year’s Autumn Statement pledged no less than £45m towards supporting businesses looking to expand and develop professional networks abroad. This suggests that the government’s recent commitment to encouraging and enabling the growth of our country’s independent enterprises is actually part of a longer term plan to further support the entrepreneurial spirit of the UK’s contractor workforce.
Although many of these changes will affect individuals differently, depending on personal circumstance, it’s difficult to estimate their real impact until they are implemented. And while the contractor landscape is always uncertain, it’s clear from this year’s Autumn Statement shake-up that change is on the way. New investment and income tax breaks present welcome opportunities to contractors looking to keep their income levels up.
Are you a contractor in need of some money advice? Intouch Accounting are contractor accounting experts, able to provide professional support to Limited Company contractors – leaving you to focus on the matter at hand without needing to worry about your finances.
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.