How to become an IT Contractor - Becoming an IT Contractor

Read the key points for contractors from the 2009 Pre-Budget Report.

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Martin Hesketh, MD of contractor accountant Brookson, outlines the company's thoughts and expectations for the December Pre-Budget Report, and the difficult task facing the Chancellor Alistair Darling:

"This month's Pre-Budget Report (PBR) is set in the backdrop of an already negative economic climate. The economy has not recovered as well as initially predicted in the April Budget, indicating that there will be a need for an increased level of borrowing over and above Government forecasts in order to compensate for the deficit. Tax receipts (particularly Corporation Tax receipts) are well down on forecast and there has also been widely publicised recognition that a cut in public spending is in order to create 'efficiency savings'."

So what are the options?

"Cuts in public spending and increased borrowing will not be enough to 'fill the gap'. It is inevitable that tax rises will be implemented, but the big question is which rises and when? The impending election suggests to me that the Chancellor will maintain spending and increase taxes on the wealthy, thereby leaving it until post election for the Government to then raise further taxes. For example, I think an increase in the basic rate of income tax will be introduced following the next election.

"It's important to remember though, that significant tax rises have previously been announced, including a new 50% income tax rate, removal of personal allowances for earnings over £100k, additional fuel duty increases, a 0.5% rise in NI contributions and the removal of pension tax relief over £150k.

"One thing that can be predicted with some certainty is that the Chancellor will introduce a windfall tax on bankers' bonuses. The outcry against the banks, for demanding that employees still be paid huge bonus sums, leaves the Chancellor with little choice but to impose legislation which will tax the wealthy and hopefully go some way to appeasing the public backlash.

"It also seems likely that the Chancellor will introduce more anti tax avoidance measures and increase HMRC enforcement powers further. Particular areas of focus may be around, implementing measures to tackle false self employment in the construction industry and expenses abuse."

Small Businesses

"As far as businesses are concerned, if the Chancellor is trying to assist businesses (particularly small businesses) to become the recovery engine for getting UK plc out of recession, he should not raise Capital Gains Tax (CGT) levels and postpone the previously communicated 1p increase in the small companies' Corporation Tax rate. It is unlikely that the latter will be postponed and he may also increase CGT rates, as this will be seen as taxing the wealthy and also moving someway towards bridging the gap between capital and income tax rates."

Summary

"It's clear that the Chancellor has an insurmountable challenge ahead of him as he struggles to bring the UK economy back onto a level playing field. It will be interesting to see how he deals with this challenge and whether an approach of taxing the wealthy will be used as a solution to avoid tackling the wider economic issues pre the election."