Emergency Budget - What can contractors expect?

We've all been warned that the forthcoming 22nd June Budget is going to be the most significant in a generation - with the need to slash Government costs, and raise taxes (for obvious reasons).

So, what should contractors and other small business owners expect next week?

Speculation is understandably rife, and for accountants - this particular Budget is bound to prove particular troublesome, as most tax rates and bands are likely to change.

• VAT is likely to rise from the current standard rate of 17.5% to 20% or more - raising over £10bn per year for the Treasury.
• We already know that the coalition has promised to scrap the planned 1% rise in Employers' National Insurance Contributions, although employees are likely to be presented with a 1% increase in their contributions.
• Corporation Tax for larger companies is likely to be cut from 21% to 20%, although opinion is divided over whether the small companies' tax rate will also be reduced from 21% (the rate limited company contractors pay).
• Capital Gains Tax on non-business assets will certainly rise - by how much is anyone's guess. Interestingly, most studies suggest that such a move may actually result in lower tax receipts for the Treasury in the long term!
• The starting rate of Income Tax is likely to rise some way towards the Lib Dem target of £10,000. This would be cripplingly expensive to implement in one go, and higher earners are unlikely to benefit.
• The coalition have promised to "review" IR35 of course - however, the legislation cannot be simply abolished in isolation and is more likely to be reviewed as part of a general review of small business taxation at a later stage.
• The Inheritance Tax threshold has been frozen at £325,000 (much to the Tories' dismay), so more and more estates will now enter the IHT net, thanks to the effects of 'fiscal drag' over the coming years.

Try our friends at Contract Eye for more information on what to expect on Budget day.

We will, of course, update the Clarity site on Budget day, together with updates on how any changes will affect contractors.