Budget 2014 summary for IT contractors

Here is a brief summary of the key points announced during today’s Budget.

Economy / Outlook

  • The Chancellor expects GDP to hit 2.7% in 2014 and 2.3% in 2015, before rising again to 2.6% the following year.
  • The Government expects to borrow £108bn this year (6.6% of GDP). Unsurprisingly, this figure is predicted to fall steadily before turning into a surplus in 2018-19.

Individual Measures

  • As previously announced, the personal allowance will rise to £10,000 from 6th April 2014, and will rise again – to £10,500 from April 2015.
  • The higher rate tax band will rise to £41,865 from 6th April 2014, and to £42,285 from 2015 (a 1% rise), so more and more taxpayers will continue to fall into the 40p tax band.
  • Cash and Stocks ISAs will be merged, and the annual investment limit will rise sharply to £15,000 from July 2014.
  • If you invest in Premium Bonds, the investment cap is going to rise from £30,000 to £40,000 this June, and to £50,000 in 2015.
  • The tax payable on any cash element of a pension pot, paid upon retirement, will fall from 55% to standard tax rates.
  • The Chancellor has removed the annuity requirement for pensions – something welcomed by the the IoD, which called the requirement “one of the most unattractive aspects of the private pension saving regime, patronising people about how they could access their own money in retirement.”
  • The planned September fuel duty hike has been cancelled.
  • The equity loan element of the Help to Buy mortgage scheme has been extended until 2020. The mortgage guarantee element is set to continue until the end of 2016.

Business Measures

  • The main rate of Corporation Tax will fall to 21% in April 2014 (pre-announced), and will align with the small profits’ rate (paid by contractor companies) at 20% from 2015.
  • The Annual Investment Allowance (AIA) will double to £500,000 until the end of 2015, allowing business owners to offset the cost of eligible plant and machinery purchases against tax.
  • The Government is set to double export lending to £3bn, and cut the interest rate on loans by one third.

Tax Avoidance

  • The Budget documentation doesn’t make any mention of IR35.
  • The Chancellor confirmed that the Onshore Intermediaries Legislation will go ahead, as planned, which prompted a few words of caution from Simon McVicker, Director of Policy and Public Affairs at PCG, who said: “The Chancellor is right to clamp down on tax evasion but the Government, in its commitment to tackle this problem, must be very careful not to target legitimate independent professionals who are driving growth in the economy.”
  • Users of so-called ‘follower’ schemes, which are similar to anti-avoidance schemes which have been defeated in the courts, will be forced to settle any deemed tax liabilities with HMRC.
  • Interestingly, HMRC will also be able to demand disputed tax liabilities from users of schemes disclosed under DOTAS (or identified via the GAAR) in advance. These funds will only be returned if the scheme in question is subsequently cleared of tax avoidance.

For more information, you can access the full Budget speech and associated documents at GOV.UK.

Further updates and reaction to follow…

Contractor Services