According to Howard Archer, chief European and UK economist at IHS Global Insight, last week’s Pre-Budget Report was merely a “stopgap” and that further increases in tax and cuts in government spending are likely in 2010. This view is shared by several leading contractor accountants.
It’s no surprise that the size of the UK’s debt is a major concern for the Bank of England, who say that the current AAA credit rating could be at risk. Mr Archer agrees, but has suggested that it’s “probably” safe until next year’s general election.
He further added that “the rating agencies and the markets will be looking for early and decisive action and indications from the new government about exactly how they intend to bring the budget deficit down.”
There are two ways this can be achieved. Either through reducing government spending or raising taxes. The chancellor has already announced a series of tax changes in his Pre-Budget Report, which included a 0.5 per cent rise on National Insurance Contributions from 2011 and the reinstatement of the 17.5 per cent VAT rate from 1st January 2010.
The good news for many limited company contractors is that the planned 1p corporation tax increase for smaller companies has been delayed until 2011/12. It is thought that this is mainly due to government fears that increasing taxes now would suppress the UK’s economic recovery. There is no change to the IR35 Rules or Family Business Tax.
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