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Budget 2011 predictions - how will contractors fare?
Posted Mar 22, 2011
Click here for: 2011 Budget - Key Points for Contractors.
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Around this time of year, accountants tend to get excited about the measures the Chancellor is likely to deliver on Budget day.
We examine the changes we already know about, and others that are likely to be announced on the 23rd March.
Pre-announced tax changes from April 2011
Many of the income tax changes have already been announced (although they are always subject to change). For obvious reasons, there are unlikely to be many tax winners this time around:
- The higher rate tax threshold for 2011/12 will be lowered from £37,401 to £35,001.
- The personal allowance increases by £1000 to £7,475, but does not make up for the reduction in the higher rate threshold. More people than ever will be paying higher rate tax as a result due to 'fiscal drag'.
- The 50% 'additional' rate of income tax remains for income of over £150,000.
- The dividend tax rates remain unchanged for 2011/12, at 10% (starting rate), 32.5% (upper rate), and 42.5% (additional rate).
- Alongside increases in employee's NI rates, the employers' NI rate also rises from 12.8% to 13.8%.
- The small companies' corporation tax rate will be reduced from 21% to 20% from 1st April 2011. The main rate (for larger companies) falls by 1% to 27%.
- The overall ISA limit will rise from £10,200 to £10,680 (including a cash limit of £5,340).
Budget 2011 predictions
1. The Chancellor may well decide to set in motion a merger of income tax and National Insurance Contributions, as suggested by the OTS in its interim report earlier this month.
2. Following the MP's expenses scandal, CGT rules may be changed to prevent multiple property owners from 'flipping' their main residence for tax purposes.
3. Plans to cut red rape for small businesses in particular are likely to be unveiled, as first announced by Vince Cable last week.
4. Accountants Kingston Smith have suggested that the threshold for the 50% additional rate of tax may be reduced, although this view does not seem to be widely held.
5. The Coalition has already frozen the inheritance tax threshold at £325,000 until 2014/15, although a 'super tax' on high value estates could always be introduced.
6. The removal of Stamp Duty on properties worth £250,000 and less may be extended due to the continued depression in the housing market.
7. Further anti-avoidance measures are likely to be announced. The Finance Bill 2011 is already set to end the viability of EBT schemes for contractors from April 6th 2011.
8. Following such a recent rise in January, most experts feel a further VAT rise is highly unlikely.
9. Pro-enterprise measures are likely to be announced, to encourage both business and individual investment in the UK, such as the creation of new Enterprise Zones.
10. The contracting industry would be disappointed if the Chancellor made no mention of IR35, in light of the recent OTS report. Many contracting industry insiders expect IR35 to stay in a better administered form. All content ©Contract Eye Ltd. Protected by Copyscape. Please scroll down for related articles.
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