Martin Hesketh, managing
director of Brookson, one of the leading providers of
accountancy, tax
advice
and
support services to self-employed professionals, gives his initial reactions
following the Emergency Budget announcement.
“The challenge facing George
Osbourne in the coalition’s first Budget announcement has been, to say the
least, extensive. It was no surprise, with over £100 billion to re-coup,
unemployment levels still on the increase and the post-recession economy more
fragile than ever, the Chancellor positioned the Budget, in his opening
statement, as an unavoidable one.
Highlights for self-employed
professionals
“The main theme for the
self-employed professional market, following the Budget announcement, can be
viewed as one of ‘cautious encouragement’. It was pleasing to see the Chancellor
acknowledging that the Government is committed to supporting UK enterprise,
specifically small businesses and self employed professionals, which was shown
through his decision to reduce Corporation Tax (CT) and his commitment to review
IR35.
“That said, the announcement of
expected but significantly extensive public sector cuts could provide some
self-employed professionals with real challenges in terms of current contracts
and ongoing work. Public sector cuts were focussed upon throughout the lead up
to the announcement and clearly not without justification. The Government has
announced that it plans to ultimately reduce public sector spend by 25%. With
healthcare and overseas aid ring-fenced and an acknowledgement that the armed
forces and education may not be hit by the full force of these cuts, it will be
interesting to see where the 25% cuts will be made up
from.
“Self-employed professionals
will no doubt see the decision to reduce the lower rate of CT, often
referred to as ‘Business Tax’, by 1% next year, compared with the previous
Government’s proposed 1% increase, as one of the more positive elements to come
out of the Emergency Budget. This seems to genuinely demonstrate the
Government’s commitment to support small businesses in particular.
IR35
“Notably, although the
Chancellor did not refer to IR35 within his Budget announcement, the Budget
report has outlined, as we predicted, that the Government remains committed to a
review of IR35 and Business tax.
“The review of IR35 will no
doubt form part of the Government’s overall review of CT. Via a five year review
process the Government has committed to provide ‘greater certainty’ for
businesses by committing to principles for CT reforms. In particular it intends
to develop its view that, in general, a broad tax base, a low rate and a more
territorial approach will improve competitiveness. The more detailed programme
for reform will be outlined in the autumn. However, the Government has outlined
that it will seek greater consultation on the needs of ‘business’. This may
provide opportunities for professional bodies such as the CBI, FCSA, APSCo, FSB,
REC and PCG to contribute to ongoing discussions, in particular, to ensure the
flexible workforce and their needs is fully understood and properly represented
in any consultations.
Regional and
Sector
“It is encouraging to see that
the Government appears to be focussing on providing growth opportunities and
continued investment into regional development within the UK, particularly
outside of London. For example, the Chancellor announced a regional employer
National Insurance Contribution (NIC) holiday for new businesses, which entitles
all new companies set-up outside of London and the South East, to qualify for a
maximum NIC saving of £5,000 per employee. The full details around this NIC
holiday have not yet been published but again this shows the Government’s
commitment to helping new business growth.
“Those self-employed
professionals working specifically within infrastructure may also be pleased to
note the commitment from the Government to proceed with capital projects such as
the upgrade of the Tyne and Weir Metro and Manchester Metro Link as well as work
around Birmingham New Street stations and the rail line between Liverpool and
Leeds. It is highly likely that a number of opportunities will fall out of this
investment in regional infrastructure and self-employed professionals should
ensure they are on top of any potential opportunities to get involved as soon as
more details are announced.
Other Tax
Changes
VAT
“There is no doubt that the
biggest announcement from the Emergency Budget has been the VAT increase from
the current 17.5% rate to 20%, due to take effect from 4th January
2011. Interestingly, more than a third of the money the Exchequer is aiming to
recover in the current financial year (£8.1 billion) will be accounted for by
this tax increase.
“For those self-employed
professionals operating in the flat rate VAT scheme, there will be a
proportionate increase to the rate of VAT applicable to their business.
Capital Gains
Tax
“It is worth noting that the
standard rate for Capital Gains Tax for high earners is increasing from 18% to
28% from 23 June 2010. The rate of CGT for basic rate tax payers will remain at
18% and the reduced rate of CGT in place for entrepreneurs will remain at 10%.
Capital
Expenditure
“The Government has announced
restrictions on tax relief for capital expenditure, however, these restrictions
won’t take effect until April 2012. This again shows that the Government is
trying to alleviate, where possible, the excess pressure on businesses, in the
short term, to allow an opportunity for growth following the impact of the
recession.
National
Insurance
In terms of changes around NIC,
the Chancellor has softened the blow of the NIC rises for employers, due to take
effect from April 2011.
Overview
“The Chancellor made much in his speech of making sure that Britain
was seen as being ‘open for business’ and supporting those that are working hard
to grow or set-up new businesses within the UK, both of which will contribute
towards getting the UK’s economy back on track.
“The flexible workforce will play a critical part in the recovery of
the UK economy and on face value, the new coalition Government appears to be
making the right noises in terms of wanting to genuinely understand the
self-employed professional market, which I believe the industry should see as
optimistic.
