This week we’ve reflected on George Osbourne’s third unremarkable budget and highlighted five changes which contractors need to know about. In addition, you can download the full budget factsheet here.
Tax-free allowance to increase by £630
The personal allowance for employees under 65 will increase by £630 to £8,105 per year. The starting point for higher rate tax will remain unchanged at £42,475.
Additional rate tax reduced from 50% to 45%
Commencing April 2013, the additional rate of tax on earnings over £150,000 will be reduced from 50% to 45%. The personal allowance will continue to be reduced for individuals earning over £100,000.
Personal service companies / IR35
The government are bringing forward plans to make it easier to understand and assess IR35, in an attempt to tackle tax avoidance. HMRC will be strengthening the compliance teams and simplifying the way IR35 is administered. In addition the government will begin consulting on proposals to deduct PAYE and NIC at source for individuals who are pivotal to the running of an organization, such as office holders.
Simplified taxation for small businesses
The government have commenced consultation on simplifying bookkeeping requirements and taxation for small unincorporated businesses (i.e. sole traders or partnerships). Legislation will be implemented in 2013 and we do not believe that this will impact limited companies.
Corporation tax reduction for large businesses
Over the next two years the rate of corporation tax for large businesses will reduced from 26% to 22%. The rate for small businesses (those with profits of less than £300,000) remains unchanged at 20%.