The Chancellor has delivered his 2011 Budget, which contained several surprises, and confirmed what a lot of pre-announced tax changes and new policies.
Of most interest to contractors is the news that IR35 is to remain in place, but with better regulation. The Treasury felt that it would lose significant tax revenues if the legislation were abolished.
The 2% drop in the Corporation Tax rate, announced today, applies to the main rate for larger companies, not the rate contractor companies pay. The ‘small profits’ rate will be cut by 1% to 20% from 1st April 2011 (more here).
Budget 2011 – Key Points
- This Budget is intended to be ‘fiscally neutral’.
- Annual GDP growth is expected to be 1.7% in 2011, 2.5% in 2012, and further rises in subsequent years.
- Inflation is expected to remain between 4 and 5% during 2011, before dropping below 3% in 2012.
- Borrowing is set to fall from £146bn in 2010/11 to £29bn in 2015/16.
- The Chancellor aims to make the tax system fair, simple to understand, and easy to comply with.
- 43 tax reliefs are to be abolished following recommendations by the Office of Tax Simplification (OTS).
- The Government has decided to retain IR35 as “abolition would put substantial revenue at risk.”
- A consultation on the merger of income tax and National Insurance will be launched.
- The main rate of corporation tax is to fall by 2% in April from 28% to 26%, not 1% as previously announced. However, contractors pay the ‘small profits’ rate, which will fall from 21% to 20% as pre-announced.
- The personal tax allowance, which rises by £1,000 on 6th April 2011, will rise by a further £630 in April 2012.
- Mileage allowances increased to 45p per mile for the first 10,000 miles from 6th April 2011. 25p for additional miles on top.
- VAT registration threshold raised to £73,000.
- The 50% additional income tax rate is ‘temporary’, but it would be inappropriate to remove it now.
- New clampdown on tax avoidance to raise £4bn over the next four years – further details to follow shortly.
- Rate of income tax relief VCT’s or the EIS increased to 30% from April 2011.
- 21 new Enterprise Zones are to be created. The first 10 will be in urban areas.
Many of the tax changes have been pre-announced, although they are subject to change. These include changes to National Insurance Contributions, income tax bands and allowances.
Of most interest to the contracting community is the announcement that IR35 will remain in place, as abolition could result in a significant shortfall to HM Treasury’s coffers.