Reply to: Budget 2009 - What does it mean for contractors?

[JSA Services Limited]

Somethings you might like to know....

On the surface Alistair Darling’s budget appears relatively “harmless”. However as a contractor there are a few key points, which you might like to be aware of:

Income Tax Rates & Allowances
As most people will have noted by now yesterdays budget saw the introduction of a new 50% rate of tax for those earning over £150,000. In addition the Government are also planning to remove the personal allowance (the amount you can earn before you pay tax) for those whose earnings exceed £112,500 and this will be done on a sliding scale so anyone earning in excess of £100,000 per annum will be affected. Both of these changes are due to take effect from April 2010 and signal the beginning of a far more hazardous tax landscape for the UK’s higher earners.

Pensions
On top of this the Government will also be restricting pension relief to 20% for those with incomes in excess of £150,000 and to further rub salt in to the wounds will be launching anti-avoidance rules to stop individuals making large contributions to their pensions to compensate before the legislation takes effect in April 2011.

Income shifting
From an Income Tax perspective there is one piece of good news as the Government have restated their position on Income shifting, the practice – in Government eyes - of shifting the income of one business partner to another to reduce the tax burden, and confirmed that no legislation will be launched in the foreseeable future, however they have made it known that they will keep this under review meaning the likelihood is that this isn’t the last we will be hearing of this.

VAT rates
As we all know in December 2008 the VAT rate was reduced to 15% in a bid to get us all spending again however this was only ever a temporary fix and the Government have confirmed that from the 1st January 2010 the standard rate of VAT will revert to 17.5% just in time for the January sales.

Final thoughts
One other interesting point, which came out of yesterday’s budget, is the Government’s obvious desire to extend HMRC’s powers and allow them to pursue those who they deem to be cheating the system, with a new level of ferocity. Measures announced include a New Disclosure opportunity for those with off shore bank accounts giving holders the chance to disclose, of their own accord, if they owe HMRC money and in addition HMRC are also likely to be given powers to name and shame individuals who are deemed to have deliberately understated tax in excess of £25,000.

[tino]

Well, excepot for the fact that the 50% is only on income above 150K, so you'll never get less than half.

cukoo cukoo cukoo

[NickNick]

I'm no economist but it seems to me that this government needs some common sense. If you tax people 50% of their income plus NI they will earn less than the Government get in taxes. Who would accept a job at those terms? And thats not the only common sense lacking.

Well, excepot for the fact that the 50% is only on income above 150K, so you'll never get less than half.

[snaw]

Yeah, that's what he said too

(sorry - is this meant to be a serious thread?)

That before he .. umm, better stop now.

[Don Clark]

They showed Dennis Healy on the TV last night and his 'sparkle in the eye' promise to come after the better off. Back then they made no bones about their dislike for anyone getting on and I suspect they will not worry about demonstrating so now. They think it's a vote winner with their core supporters, however NewLabour have disenfranchised those guys in their attempt to court the 'middle classes'. It's going to get awfully messy from now on and I would suggest an early GE might be his best course of action, save a reasonable number of seats at least.

[SallyAnne]

I love you Sally Anne

Yeah, that's what he said too

(sorry - is this meant to be a serious thread?)

[SantaClaus]

Isn't this all a bit theoretical if the end result is economic armageddon and Labour holding up a begging bowl at the IMF?

Speaking of which, today is the alledged Martin Armstrong crash day

[Mich the Tester]

Isn't this all a bit theoretical if the end result is economic armageddon and Labour holding up a begging bowl at the IMF?

[Pondlife]

He's right, and you know it.

Nah, This was a pretty contractor neutral budget as far as I can see.

FBT/Income splitting is still deferred - winner

50% tax on >£150K only affects those who are IR35 caught or using a brolly though laziness.

Reduced tax relief on pensions for earners over £100K - see above plus those who are stashing masses away as they're due for retirement shortly.

People using dodgy overseas loan schemes - Well, this was already happening with BN66(?) etc

It could have been much worse IMHO.

This won't affect "employers" use of contractors.

My £0.02

[ChimpMaster]

List of post budget consequences:

1) Contractors using Umbrella Companies or similar "Loan" avoidance ideas will get bashed with the treasury baseball bat until every last penny falls out their pockets

2) Limited companies with one employer will get a letter inviting you to personal interviews with the intention of finding you IR35 compliant , any legal challange will be met by replacing previous fair minded judges of compliance cases with "Your guilty" rubber stamping admin staff.

3) Employers will be even more frightened to take on contractors with even more red tape from HMRC.

4) Not only will you have to deal with desperate drug infused junkies stabbing you for 10 quid in your wallet when you get on a bus (if you have 10 quid left) but your also going to have a similar experience from desperate and equaly dangerous tax officials (ok so they wont stab you but you might just see them putting your house up for sale and carting all your assets down to the local auction , similar effect) , thoes that "collect" the most money will be given incentives.

My advice is to lease everything and put all your money in a foriegn bank , that way if you do get "selected" then you can at least go abroad and start again.

Thought I would just tell it how it is , have a nice day.

He's right, and you know it.

[snaw]

It's possible, depends how HMRC writes the rules, perhaps they'd require owner who buys new car with this discount to own new car for another year, but even that is not fool proof - £2k is not a lot of money, but it's bound to create a market for buy/sell banger schemes.

I should know by now that irony is completely lost on you.

[Mich the Tester]

Looks like its a 50% tax on 100K earners. Combine that with NI and there will be a drain brain. Who wants to give more money to the govt. than they get themselves?

An awful lot of 100K earners work for themselves and have a lot of control over their salary. Here in NL, when I'm in danger of getting into the 52% income tax scale my accountant phones me and tells me to stay in more expensive hotels close to clientco to increase my business costs (there's no limit on business hotel costs in NL). So I spend much of the year staying in cheapo places and then take up residence in a 5* place like the Amstel Hotel at the end of the year. Add in some first class trips to 'software conventions' on the Cote d'Azur and hey presto, my salary for tax purposes can end up below the average wage. Brilliant political thinking; tax people so heavily they pay themselves less. The hotels do very nicely though.

[motoukenin]

What the budget will do

List of post budget consequences:

1) Contractors using Umbrella Companies or similar "Loan" avoidance ideas will get bashed with the treasury baseball bat until every last penny falls out their pockets

2) Limited companies with one employer will get a letter inviting you to personal interviews with the intention of finding you IR35 compliant , any legal challange will be met by replacing previous fair minded judges of compliance cases with "Your guilty" rubber stamping admin staff.

3) Employers will be even more frightened to take on contractors with even more red tape from HMRC.

4) Not only will you have to deal with desperate drug infused junkies stabbing you for 10 quid in your wallet when you get on a bus (if you have 10 quid left) but your also going to have a similar experience from desperate and equaly dangerous tax officials (ok so they wont stab you but you might just see them putting your house up for sale and carting all your assets down to the local auction , similar effect) , thoes that "collect" the most money will be given incentives.

My advice is to lease everything and put all your money in a foriegn bank , that way if you do get "selected" then you can at least go abroad and start again.

Thought I would just tell it how it is , have a nice day.

[AtW]

Wow, you really think so?

It's possible, depends how HMRC writes the rules, perhaps they'd require owner who buys new car with this discount to own new car for another year, but even that is not fool proof - £2k is not a lot of money, but it's bound to create a market for buy/sell banger schemes.

[Doggy Styles]

Was there anything in the budget for me? I'm a cheesemaker.