Contracting Matters

So Mr. Osborne delivered his first (seemed short and snappy to me) budget and whilst the devil is in the detail (available here ) here is my take on how it might help (or hinder) Contractors, Agencies and those important end clients. Let’s have a look at the “big things” first:

• In general terms it appears to be a relatively pro business budget so that for those of us working in this sector, we may feel somewhat optimistic rather than doomed. The counter of is that the “25% cut in department spending” over four years could have ramifications for those working on Government projects. However, as is always possible, that could be actually countered by a permanent headcount freeze and supplemented by Contractors. Let’s not forget that UK Gov is one of the biggest users of Contractors!
• It appears that the NI incentives to set-up businesses (outside of the land known as the “South East”) will also be helpful and will be interesting to see how that affects single or two person businesses.
• VAT increase to 20% – could have some cash flow implications for smaller recruiters but providing decent credit control is in place it should not be an issue.

Turning to the real impact on Contractors I think we can say that it is relatively good news at that level (in other aspects it depends on your view on alcohol taxation etc and some of the proposed welfare cuts). I think the general view is that Umbrella contractors will get some benefits and those operating through Limited Companies will also feel some improvements.

• Umbrella contractors will benefit from an increase in personal allowances to the tune of £1000 and with an increase in the employers NI threshold, the nett position should be an improvement. But what about the rise in VAT I hear you cry! Well, if you claim valid business expenses (and perhaps even more a reason to do so now) then you should be better off. If you’re an higher rate tax payer it could also mean that if you claim expenses and with an increase in allowances, your tax position could be better. The caveat is of course that the expenses must be legitimate and as everyone knows, we do not promote the abuse of this.
• The reduction in small companies taxation to 20% will also be well received by small business and this will be the case for those operating a Limited Company. Those same companies may also benefit from those changes in employers NI and the commitment to review small business taxation (which includes ir35) is to be welcomed.
• For some contractors, the increases in capital gains could be a pain if you have an extensive property portfolio but for those that are building up say a consulting business, the entrepreneurs relief improvement is of course welcome.

So – a generally pro Contractor budget in my opinion. It won’t be perfect for everyone but for those of us trying to get on and create some opportunities for ourselves and others, it sounds ok.