Budget 2015 Update

George Osbourne opened his final budget speech before the general election with the brave statement that "This budget backs the self-employed and the small business owner". Below we have analysed how it will impact our contractor, freelancer and small business clients.

Economy

Britain grew 50% faster than Germany and faster than any other major advanced economy last year.

1000 new jobs were created every day with unemployment rates at record low levels.

Living standards are higher in 2015 than they were in 2010 with the average household now £900 better off.

The government will raise £9bn by selling off its stake in Lloyds.

The chancellors original debt target set out in his first budget has been met but £30bn of extra savings are still required.

 

Personal Finances

The national minimum wage for over 21's will rise to £6.70 in October 2015 with further rises putting it on course for £8 per hour by 2020.

The Entrepreneurs relief rules are to be tightened to ensure only owners selling shares in genuine businesses can benefit from the lower 10% capital gains rate.

A review into the avoidance of inheritance tax through the use of deeds of variation will take place.

The personal tax free allowance will rise to £10,600 from April 2015. There will be further rises to £10,800 in April 16 and £11,000 in April 2017.

The higher rate tax threshold will also rise by £315 in April 16 and by £600 in April 17 taking the total threshold in 17-18 to £43,300.

Class 2 NI for the self-employed will be scrapped, this will likely be replaced with changes to the Class 4 NI the self-employed are also liable to pay.

 

Savings & Pensions

The lifetime pension tax allowance will be reduced from £1.25m to £1m.

There will be a new savings tax free allowance from April 2016 of £1,000 for basic rate tax payers, for higher rate tax payers this will be £500.

Reforms to ISA's from April 15 will make them more flexible, you will now be able to dip in and out of your savings in the tax year without losing the ISA tax benefit.

A new Help to Buy ISA is being introduced where the government will contribute £50 for every £200 people save for a deposit on their first property.

 

Business Measures

The main rate of Corporation tax will be cut to 20% from April 15 to bring it in line with the rate small businesses pay.

Employers NI for under 21's will be scrapped from April 2015 as already announced.

Following consultation a package of measure will be implemented to make R&D tax credits more accessible to small businesses.

The Annual Investment Allowance (AIA) is due to fall to £25,000 in January 2016 from its current level of £500,000. Whilst the chancellor admitted this was not acceptable he failed to provide further details as to what we can expect this to be.

 

Other measures

Beer duty is to be cut 1p with spirits and ciders cut by 2%. Wine duty will be frozen.

Fuel duty will be frozen again.

A series of tax cuts and credits have been announce to help boost the oil & gas industry in the North Sea as well as the creative industry.

Self-Assessment tax returns will be phased out over the next parliament with information being automatically uploaded to a new online digital tax account.

 

Agencies & Umbrella companies

It was announced in the budget that they would "clamp down" on Agencies and Umbrella Companies. After taking a closer look at the finer detail we have discovered that this is based around the restriction of travel and subsistence relief.

Worryingly the report talks about restricting these expenses for contractors using Umbrella companies and Personal Service Companies (PCS) where the contractor is subject to supervision, direction and control of their client. 

We interpret this to very loosely mean that those contractors caught by the IR35 legislation will no longer be able to claim these expenses. The report contained very little detail on this and confirmed a consultation will take place with the changes scheduled to take effect from April 2016, so this is one area we will watch very closely.

 

Summary

The help to boost the oil & gas and creative industries, industries that are typically dominated by contractors and freelancers, is very welcome and should help to create more contractor jobs.

This was a good budget for savers with some major changes to ISA's.

The attempt at tax simplification is definitely welcome, the abolishment of class 2 NIC should help to make the tax system slightly simpler for the self-employed. However we are very sceptical about how HMRC plan to scrap the Self-Assessment tax return given the mess they have made of recent changes, particularly payroll RTI, we fail to see at this stage how their systems will cope. 

One of the main points to remember is that with the general election taking place in just a matter of weeks a lot of the announcements that are scheduled to take place over the course of the next parliament could become completely irrelevant with any change in political party!

Although there are a few areas of concern that require further investigation this was generally a positive Budget for contractors, freelancers and small business owners.

If you would like to take a more detailed look at the budget statement check out the gov.uk website

Tags: News, Expenses, PAYE, Corporation Tax, Self Assessment, IR35

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