Budget 2011 - Summary of changes

The Chancellor delivered a spirited Budget speech today. Although there were no real winners or losers as a result of changes announced today, the Budget was pro-Enterprise and delivered a wide range of policies which can only make the UK a more competitive place to do business in.

Following the OTS interim report recommendations earlier in the month, the Treasury has decided to keep IR35 as it is, but with the promise of better HMRC regulation. This will not come as any great surprise to many in the contracting industry. Although the amount of tax collected directly as a result of IR35 may be insignificant, the Government could lose hundreds of millions in extra NIC and income tax payments made by umbrella company contractors. These contractors would be more likely to incorporate if IR35 were abolished.

Here is a summary of the main points announced today (of most relevance to contractors), together with tax changes which were pre-announced:

Main Budget 2011 changes

  • The small profits rate of corporation tax will fall from 21% to 20% from 1st April 2011 - this is the rate contractor companies pay.
  • The main rate of corporation tax (paid by larger companies) will be cut from 28% to 26% from 1st April 2011, with further cuts in subsequent years.
  • 43 tax reliefs are to be scrapped altogether.
  • IR35 is to remain intact, with a pledge to enforce the rules more effectively.
  • The lifetime allowance under the Entrepreneurs' Relief regime will double from £5m to £10m from 6th April 2011.
  • A consultation will be launched into the merger of National Insurance and income tax.
  • The personal tax allowance will rise by £1,000 on 6th April 2011, and by a further £630 on 6th April 2012.
  • The higher rate threshold falls from £37,400 to £35,000, cancelling out the benefits of an increased personal allowance.
  • The Government is planning to scrap unnecessary regulations, and new businesses will have a 3 year moratorium on new domestic regulations.
  • The Chancellor made it clear that the 50% rate of income tax is a temporary measure, but now it is not the right time to scrap it.
  • The employers' NI rate will increase from 12.8% to 13.8%, and the employees' Class 1 NI rate rises from 11% to 12%.
  • The rate of income tax relief on VCTs and EIS investments has been increased to 30%.
  • The tax-free pension contribution allowance falls to £50,000 per year.
  • Mileage allowances has been increased to 45p per mile for the first 10,000 miles, and 25p for additional miles.