Budget 2013 – Highlights for Contractors

IR35

The anticipated guidance for 'office holders' failed to materialise yesterday and we were simply left with one sentence at 2.192 of the Budget Report that stated, “As announced at Autumn Statement 2012, the Government will make a small amendment to the existing IR35 provisions to equalise the tax and NICs treatment of office holders, and put beyond doubt that the legislation applies to office holders for tax purposes (Finance Bill 2013).”

The Finance Bill is to be published on 28th March so it is likely that any guidance may be released at the same time.

National Insurance

An annual allowance of £2,000 will be introduced for all businesses and charities to offset against their employer Class 1 NIC's from April 2014. The allowance will be claimed as part of the normal payroll process through RTI.

Employee loans

The de minimis limit at which a low cost or interest free loan provided by an employer becomes taxable has been doubled from £5,000 to £10,000.

Employers will no longer be required to report details of loans where the outstanding balance is £10,000 or less throughout a tax year.

This measure will take effect on and after 6th April 2014.

Close company (5 or fewer participators) loans

Where a close company makes a loan to its participators (a person who has a share or interest in a company) and is not repaid within 9 months after the end of the accounting period, a tax charge of 25% arises.

Some companies have sought to use perceived loopholes in the legislation by making loans through intermediaries such as LLP's, partnerships and trusts. Other arrangements seek to sidestep the tax charge by organising a repayment of the loan before the end of the 9 month period which is then followed closely by a new loan on similar terms.

Legislation to counter such arrangements will become effective from 20th March 2013.

Corporation Tax

We already knew that the main rate of corporation tax was set to fall to 21% from 1st April 2014 but a further reduction to 20% will apply for financial year commencing 1st April 2015 as a new unified corporation tax main rate is born.

Income Tax

Personal Allowances

The coalition government will have achieved their aim of bringing to pass a £10,000 personal allowance a year earlier when this is introduced from 6th April 2014.

Pensions tax relief

From 6th April 2014 the annual allowance will be reduced to £40,000 and the standard lifetime allowance reduced to £1.25 million.

Childcare

Under a new tax-free childcare scheme, working families will be able to claim 20% of childcare costs up to £6,000 for each child below the age of 12 under the new scheme that will be phased in from Autumn 2015. The relief will be available to families that do not claim tax credits or the Universal Credit, and where each parent is in work and each earns below £150,000.

Statutory Residence Test

A new statutory test for UK residency will be introduced as from 6th April 2013. The new test will incorporate day counting tests together with an examination as to how closely an individual is linked to the UK.

Real Time Information (RTI) penalties

Late filing penalties for RTI will be introduced by Finance Bill 2013, with the size of the penalty based on the number of employees in the PAYE scheme, so that different sized penalties will apply to micro, small, medium and large employers. Each scheme will be subject to only one late filing penalty each month, regardless of the number of returns due in the month. There will be one unpenalised default each year, with all subsequent defaults attracting a penalty. Penalties will be charged quarterly and will be able to be appealed where there exists a reasonable excuse.

Anti-avoidance

Offshore employment intermediaries

The Government is to consult on strengthening obligations to ensure the correct PAYE tax and NIC's are paid by offshore employment intermediaries with a view to introducing legislation next year.

General anti-abuse rule (GAAR)

Users and promoters of abusive tax avoidance schemes will be confronted with the GAAR which will counteract tax advantages from abusive tax avoidance arrangements. The GAAR will apply to the main taxes as from 1st April 2013.

Exchange Agreements

In addition to the recent agreement signed with the Isle of Man, further deals have been agreed with Guernsey and Jersey to help identify and tackle tax evasion. The UK government will also seek to sign similar agreements with other jurisdictions.

VAT

From 1st April 2013 the VAT registration threshold will be increased from £77,000 to £79,000 and the deregistration threshold increased from £75,000 to £77,000.

Inheritance Tax (IHT)

Reneging on his announcement at the Autumn Statement that the IHT nil rate band would increase by 1% for the 2015/16 tax year, the Chancellor has frozen it at £325,000 until at least the end of 2017/18.
By:Steven Bailey

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