IT Contractor Tax Limited Company Accounts Accounting

In a massively political Pre-Budget Report, the Chancellor delivered his expected cut in VAT, introduced a headline grabbing income tax hike for big earners and deferred another 1p hike in the small companies' corporation tax rate. Income shifting legislation has been delayed once more, the travel expenses tax relief issue will incur no further inspection for now, and as far as we can tell, there are no unpleasant surprises this time around.

Here are some of the main points, relevant to contractors:

1. The main rate of Value Added Tax will, from December 1st, be reduced from 17.5% to 15% until the end of 2009. Contractors on the Flat Rate VAT Scheme should refer to a dedicated HMRC document here.

2. Deferral of the increase in the small companies' rate of corporation tax. The rate will stay at 21% from April, instead of rising to 22%.

3. National Insurance rates will increase by 0.5% from 2011 - for both employers and employees.

4. A 45% rate income tax band will apply to salaries of £150,000 and above from after the next General Election (how political can you get!)

5. The £120 rebate for basic rate taxpayers - introduced after the "10% rate fiasco", will remain and will be increased to £145 from April 2009.

6. The controversial Income Shifting legislation will not, after all, be included in the Finance Act 2009.

Here is an extract from the PBR:

"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting. The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."

7. Travel Expenses & Tax Relief

"Following the consultation Tax relief for travel expenses: temporary workers and overarching employment contracts, the Government has decided to leave the current rules unchanged. However, in the light of evidence from the consultation confirming poor levels of compliance in this area HMRC will refocus its efforts to ensure that the current regime is properly applied. If compliance does not improve, the Government may return to this at a later date."