Pre Budget Report 2009 – crystal ball set of predictions for contractors

Pre Budget Report 2009 – crystal ball set of predictions for contractors

With the PBR set for 9 December, it will be interesting to see what changes the Chancellor makes to help struggling contractors, operating either via their own limited company or through umbrella companies.

Unfortunately, I don’t see the Chancellor providing any early Christmas presents to us. With the country in debt for approximately £200 billion, it’s inevitable that the Chancellor is going to have to use his speech to tell us that we are all going to have to pay more to bail out the country. The question is, will contractors have to pay a disproportionate amount?

A few predictions:

VAT provides a vast source of revenue for the government and I wouldn’t be surprised if this is increased to 20%. This could provided additional revenue for contractors who have registered under the terms of the Flat Rate VAT scheme – so potentially good news!

Restriction of company losses – If the government restricted losses so that they cannot carried forward and used to reduce future profits, when times improve, all limited companies would be required to pay more tax.

NIC increases – It would seem logical that we will see an increases in NIC. My guess is that the employer rate will remain as is at 12.8%, but an increase to the rate payable by employees earning above the higher rate. At present, NIC is payable by these employees at 1% on the top slice of their income. How high would the Chancellor go – 2.5 or 3%? This will impact more on umbrella contractors, as those running their own business can still use dividends to reduce their overall tax bill (subject to IR35).

So how will it be for contractors? Overall I see the Chancellor taking his pound of flesh equally from employed contractors as well as those running their own businesses. Therefore, the gap between umbrella contractors and limited companies will remain equal. However, the “net” income earned by both groups each will, unfortunately, go down.

Here’s hoping I’m wrong!

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Image: Self Reflection by Jerry Reynolds

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