As the dust settles after the June Budget Financial Planning Expert Paul Cleworth give us some good news for contractors.
In some ways the recently announced coalition budget was predictable – higher taxes, public sector cuts, spending cuts etc. In other ways, it can be seen as controversial, even radical, with the increase to VAT, reduction in welfare benefits, the realtivley small levy on bank balance sheets and no additional tax on banker’s bonuses. With the standard rate of VAT rising to 20%, some will see this as a ‘regressive tax’ but cleverly, it is not being brought in until 4th January 2011, so it gives people time to buy certain goods and services, and even encouarges them to do so, before this date. It is estimated to bring in c. £15 billion a year in revenues. The tax on the banks, is just 0.04% in year one, bringing in an estimated £2 billion.
Quite typically, acting leader of the oposition Harriet Harman, has said that this budget is “reckless” and that it will plunge us back into recession with further job losses. To be more realistic, let’s not forget that Labour were in power for 13 years overseeing the UK economy and setting tax rates, and although George Osbourne has said quite predictably, “we inherited this mess,” the fact is that we do have a budget deficit of £155 billion and we do need to do something about it. Apparently, with all spending cuts and tax rises, the government expect to raise £40bn by 2014/15. Quite interesting that the Trident missile system will cost over £100 billlion! We are assured that the budget deficit should be “in balance” by 2015/16 –that is if the measures do actually work. What we need is to encourage workers to work, encourage small businesses and to cut down on the red tape and administrative overspend in the public sector, without inhibiting public services.
Raising Capital Gains Tax (CGT) to 28% for higher rate tax payers from midnight last night is higher than the 18%, but not as bad as some predicted at would could have been 40% or higher. Whether CGT does acually serve to bring in more tax revenue is to be seen, as some feel it will have the opposite effects. If investors don’t sell their second homes or shares, there will be no CGT to pay.
Small companies rate of tax is being reduced from 21% to 20% from April 2011.
For basic rate tax payers (which does include many contractors who pay a nominal salary and dividends up to the higher earnings limit) they may benefit from the increase to the personal allowance from £6475 to £7475, saving £200 per annum in income tax at source.
TODO: Perhaps a review of salary levels with your accountant is requried?
The level of entrepreneurs relief has increased to £5 million from £2 million in the April Budget and the 10% level of CGT still appears to be applicable to this level.
National insurance for employers will not pay the increased 1% rise from April 2011, but it will still be applied to the employees through the paye system.
There was little about pensions mentioned in George Osbourne’s actual speech other than some fiddling with the basic state pension, but the fine print in the budget does mention that the anti-forestalling measures may be repealed which will help high earning contractors pay more into their pensions.
ISA levels remain the same at £10,200, as does the CGT allowance at £10,100.
Wealth Matters and Crunch are producing a full 28-page guide to the Coalition Budget in early July. Look out for this next mont on Freelance Advisor.
Image by alancleaver ~ cc
