How to become an IT Contractor - Becoming an IT Contractor

The contracting industry has broadly welcomed the Emergency Budget, as most contractors have escaped relatively unscathed.

An intelligent budget

The PCG called it an "intelligent budget which gives freelancers hope for a fairer time ahead".

John Brazier, MD of the contractors' group, commented:

"George Osborne delivered an intelligent and decisive Budget which has tried to tackle the historical deficit this country faces. He stated he wanted to create certainty and stability and we believe that many of his measures will do this. The roadmap for corporation tax and the laying out of income tax changes over the course of the Parliament are welcome and will help PCG members in their businesses."

Contractors relatively unscathed on the tax front

Anne Redston, Visiting Professor of Taxation at King's College London, told PCG:

"This budget has left freelancers and contractors relatively unscathed on the tax front. The promise of a small business review has been firmed up, and the Office of Tax Simplification is long overdue. In this budget the Government has set out the big picture; now they can start colouring in the details."

Concern over public sector spending

The one area of uncertainty which concerns PCG is where the public expenditure cuts will take place. The Government has committed itself to bringing the deficit back into balance by 2015 and this would be done through 77% spending cuts against 23% in tax rises.

Simon McVicker, Head of Public Affairs at PCG, observed:

"We will only real know the severity of these public sector cuts when the spending review is completed in October but many public sector contracts may end due these cuts and at least in the short term Government contracts will be severely limited."

High hope for review of the Agency Workers Rules

Professional Passport, in a dedicated Budget newsletter, reminds contractors that much of the detail remains to be seen:

"The big news for contractors - IR35 - got a mention which if nothing else confirms the promise to review it."

"There is high hope of a review of the Agency Workers Regulations as these could prove extremely damaging to the contracting market particularly those contractors who operate through an umbrella".

Chancellor made the right noises about supporting enterprises

The Forum of Private Businesses also said that many small business owners would be pleasantly surprised by the Budget:

FPB chief executive Phil Orford said:

"Not only did the Chancellor make all the right noises about supporting enterprise and smaller businesses, he backed it up with a number of crucial tax changes.

"The 1% reduction in small companies' tax is obviously more than welcome - it's something we and the SME community have long called for. It also represents a 2% cut in real terms as the previous government had planned to increase small companies' tax by a further percentage point.

"The rise in CGT had proved controversial with business owners ever since the idea was first put forward, but the 28% rate is a gentler increase than many people were expecting. More importantly, the rise in the entrepreneurs' relief threshold to £5 million is more than we could have hoped for and it should ensure that most small business owners aren't penalised too heavily when they come to sell their companies."

Umbrella companies should be encouraged

Rob Crossland, Chief Executive of umbrella company, Parasol, said that umbrella company employees should be encouraged by the measures outlined by George Osborne:

"For contractors, particularly those operating via an umbrella company such as Parasol, there are a lot of positives to take from today's budget and what seems to be a pro small business stance taken by the Chancellor.

"The increase to the income tax threshold, coupled with the £21 per week increase in employers National Insurance contributions, which we pass on to our contractors, will see them with more take home pay in their pockets.

"I'd also encourage contractors to make additional investment in their pensions in order to take advantage of the additional tax relief on offer and, with an increase in the cost of personal expenditure as a result of the increase in VAT to 20 per cent , make sure that they are claiming all the expenses they are entitled to.

"Overall, the budget's focus on lower spending versus tax increases could be a boost for UK contractors, with the caveat that the cuts to public sector funding has the potential to affect the number of new contracts out there. However, positive growth in the private sector has the potential to compensate for this."

Budget has been kind to limited company contractors

The picture looks good for limited company contractors too, as Derek Kelly, MD of ClearSky Accounting pointed out:

"We believe that the emergency budget has been kind to all contractors, regardless of how they manage their tax affairs, however, it has made contracting via your own limited company even more attractive.

"The proposed reductions to corporation tax over the next four years mean that it is cheaper for contractors to operate via their own limited company and their net income will increase as a result. This is improved further when you consider the increased rate of VAT to 20 per cent.

"The new Government has taken a stance that slightly favours the small business and encourages enterprise as they clearly see this as the best way to solve the UK's economic problems.

"There are concerns that cuts to public sector funding will have a negative impact on employment in general and, specifically for contractors, the number of projects available. However it could also be considered a positive. If this leads to a freeze on recruitment in the public sector in the hope that the private sector enjoys enough growth to compensate, then there could actually be an increase in public sector contractors as temporary workers are brought in to complete critical projects."

We'll add more comment from industry insiders shortly.