Wednesday saw the unveiling of the coalition Government’s 2014 Budget, bringing with it as always tax changes, legislative tweaks, gains for some, and losses for others. This Budget was, similarly to 2013’s measures, fiscally neutral; meaning all the tax cuts announced by George Osborne are paid for by increases elsewhere. With little spare cash to play with, what did the Government announce for the UK’s independent professionals?
Personal Tax changes
The Personal Allowance – the amount UK workers can earn before they start paying Income Tax – currently stands at £9,440. We already knew the Allowance will go up to £10,000 in April, and now Osborne has announced a further rise to £10,500 in April 2015. The Government estimates their increases in the Personal Allowance have and will result in an increase in take-home pay of £800 for the average taxpayer, and a Personal Allowance of £10,500 will lift three million workers out of Income Tax altogether.
The threshold at which taxpayers will incur the Higher Rate of Income Tax will also rise by 1% next year. Currently the threshold sits at £41,450, rising to £41,865 in April – this announcement means the Higher Rate threshold will rise to £42,285 in April 2015.
For those with young employees, measures previously announced to abolish Employer National Insurance contributions for under-21s were confirmed.
Good news for savers
A raft of measures were announced to benefit pensioners, those close to pension age, and those with savings. Cash and Stocks ISAs (Individual Savings Accounts) will be merged into one product, and the annual limit lifted from £11,520 currently to £15,000 in July. This move represents a radical simplification of ISA rules and are being dubbed New ISAs (“Nisas”) by the Government.
Osborne also abolished the 10% tax rate on savings and removed many of the rules and taxes around when and how pensions can be drawn down. Annuities – annual income purchased by retirees when they reach pension age – will no longer be mandatory for holders of defined contributions pension schemes. This move resulted in the value of some Annuity providers halving on the the London Stock Exchange.
The Annual Investment Allowance, a tax-efficient way to invest in plant and machinery, has been doubled from £250,000 to £500,000 until 2015. Research & Development tax credits available for loss-making SMEs have also increased from 11% to 14.5%, in a bid to encourage startups to invest in innovative ideas in risky markets.
Increased anti-avoidance measures
Following two years of increases in HMRC’s anti-avoidance budgets (and the increased tax revenues to match), Osborne announced yet more measures to tackle tax avoidance in all its forms. For contractors who have dabbled in questionable tax schemes, the introduction of the “Pay now, trial later” legislation could be cause for concern. This new measure, which the OBR estimates will bring in some £4 billion, means individuals using schemes which have been previously defeated in the Courts will have to pay owed tax first, and will receive it back (with interest) if their claim is deemed legitimate at Tribunal. HMRC estimates some 16,000 Contractors are in the crosshairs.
HMRC will also be granted powers to remove owed tax from offenders’ bank accounts directly, if they do not pay willingly.
Simplification of Class 2 NIC administration
A small but welcome change for the self-employed. Class 2 National Insurance contributions, which are currently paid weekly by Direct Debit, will be paid at Self Assessment time.
Good news for travellers, exporters and contractors
Other measures announced which will benefit a wide variety of business owners include:
- A reform of Air Passenger Duty to reduce the cost of travel
- Extra support for UKTI, the body which helps UK firms do business abroad, and a doubling of lending available to exporters
- A £200 million pot for local councils to help repair infrastructure damaged by recent floods and adverse weather
- Support for 200,000 new homes at designated sites across the country, potentially creating thousands of new jobs for construction contractors
Grab the documents
Once again the 2014 Budget was moderately beneficial for the UK’s self-employed, if not spectacular. Support specifically for one-person businesses was once again notable by its absence.
Personal tax cuts will help all freelancers and contractors keep a bit more cash in their pocket, while industry-specific support may prove beneficial for those it targets.
Several business groups welcomed the 2014 Budget. The CBI’s John Cridland said:
“The budget will put wind in the sails of business investment, especially for manufacturers. This was a make or break budget coming at a critical time in the recovery and the Chancellor has focussed his firepower on areas that have the potential to lock in growth.”
The EEF, an industry body for manufacturers, issued the following statement:
“The chancellor said this would be a budget for manufacturers and he has delivered on his word. The government clearly recognises the need to make the competitiveness of the UK a priority.”
The British Chamber of Commerce was similarly enthusiastic:
“Osborne’s focus on investment, exports, house-building and economic resilience passes the business test. As with any Budget, there were some populist measures that were not at the top of business’s wish list. Luckily, these were far outweighed by considered measures to support business growth and wealth creation.”
PCG, representing the interests of freelancers and contractors, weren’t quite so effusive.
“There is some investment in infrastructure and a fuel duty freeze, which is great for freelancers who travel across the country from client to client. Raising the personal allowance to £10,500 will also be universally welcomed across the labour market, including those in business on their own account.
“However PCG is concerned by the Government’s plans to push ahead with the onshore intermediaries legislation which targets tax evasion. The Chancellor is right to clamp down on tax evasion but the Government, in its commitment to tackle this problem, must be very careful not to target legitimate independent professionals who are driving growth in the economy.”
Darren Fell our Managing Director, gave us his thoughts:
“This was clearly a pre-election Budget. Lots of measures around savings and pensions to appeal to the Conservative base, but precious little for others. Once again, the fastest growing business group has been forgotten by this Government.
“The changes The Chancellor made are certainly not unwelcome – the further increase in Personal Allowance from £10,000 in April to £10,500 next year will help put a bit more money in workers’ pockets, however there were no announcements on key small business issues like access to finance or stamping out late payments.
“For Crunch as a business the 2014 Budget was a net positive – we will benefit from the increase in R&D Tax Credits and support for more Apprentice schemes, however for our clients – freelancers, contractors and micro-businesses – there were only small, token changes. For the Nation’s smallest company’s its business as usual.”