What tax changes can contractors expect from the new coalition government?

Now that we have a Conservative / Liberal Democrat coalition government, what type of tax changes can we expect?

Although both parties have had to compromise on many of their manifesto promises (such as the 'Mansion Tax' and Inheritance Tax pledges), contractors may well benefit from a lowering of the small companies corporation tax rate, and pledges by both parties to review IR35.

The main tax changes we can expect are as follows (although some are bound to change as more firm details are published by the new government)

Possible tax changes for contractors / small businesses

• Plans to immediately implement an additional £6b in public spending cuts are likely to go ahead (on top of those proposed by the previous administration)
• The Tories have pledged to cut the main rate of corporation tax from 28p to 25p, and the small companies' rate (which contractors pay) from 21p to 20p.
• Both parties have promised to review IR35, as part of a general view of small business taxation. General anti avoidance legislation is likely to be strengthened, however.
• The new 50% higher rate of income tax is unlikely to be scrapped in a hurry, due to the dreadful state of public finances.
• The Lib Dem proposal to raise the lower rate threshold of income tax to £10,000 may well go ahead, but it will require large cuts to be made elsewhere.
• The planned Labour NIC rate 1p hike will be scrapped.
• The rate of Capital Gains Tax are very likely to be increased from the present 18% level.
• The Tories' Inheritance Tax plans and Lib Dems' 'Mansion Tax' proposals will be scrapped.
• Child Trust Fund vouchers may be scrapped, in line with the Lib Dem manifesto pledge.
• The Tories' proposed tax break for married couples may still go ahead - although the tax benefits were always going to be fairly small.

Further changes are bound to be announced in due course. You can also read more in the the Conservative and Liberal Democrat 2010 election manifestos.