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Accountant welcomes contractor neutral Budget
Posted Jun 24, 2010
David Houston, MD of specialist accountants Clarity Contracting, has told Contract Eye that contractors should be generally pleased with the outcome of Tuesday's Budget.
"The emergency budget has been broadly welcomed by the business world. Limited company contractors, in particular, have escaped relatively unscathed - the Chancellor is well aware of the need for private enterprise to lead the UK out of the current economic crisis.
"The main rate of Corporation Tax is to be lowered from 28p to 24p over the next four years, and the rate which contractors pay - the small companies' tax rate will drop from 21p to 20p from next April - which represents a sizeable decrease in business tax liabilities.
"For higher earning contractors, the 50p income tax rate remains on incomes over £150,000, however this was unlikely to be scrapped in any case, given the urgent need to boost Treasury coffers.
"Writing in the Telegraph yesterday small business minster Mark Prisk once again confirmed the Chancellor's statement that IR35 is to be reviewed shortly, with this process expected to start in the summer. Clearly, the removal of IR35, assuming it is not replaced by something more onerous, will be a great relief to contractors.
"The increase in VAT to 20% next year, and corresponding increases in the flat rate VAT multiples, are unlikely to affect contractors, as they are merely "collecting" VAT revenues on behalf of HMRC. It is worth remembering that the Flat Rate VAT scheme can prove profitable to limited company contractors, who also qualify for a discounted VAT rate during their first year in business.
"Other measures, such as the increase in CGT rates to 28% for higher earners, and the effects of fiscal drag on the higher rate income tax threshold, will inevitably affect contractors (as they do all higher rate taxpayers), and the dramatic cuts in public spending and IT projects will cause concern for those seeking public sector contract work.
"However, overall, this seems to have been a relatively contractor neutral budget, with the emphasis on balancing the urgent need to redress the dreadful state of the country's finances, with the need to encourage enterprise with a view to restoring economic growth."
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