George Osborne was always going to be on a hiding to nothing with this one, especially from the contractor community. He started by boldly announcing that “this is a budget for those who aspire to work hard and get on”. Inspiring words indeed, but undone a little in the detail that he subsequently presented. The headlines promised much for hard-working contractors, particularly around paying less tax, but the detail was a little disappointing.
‘Corporation tax slashed again’ was the shout from some of the live feeds as the Chancellor delivered his numbers to the House. The detail revealed that the Chancellor was actually dropping the main rate of corporation tax for large companies with significant profits, rather than doing anything for small companies. The coalition government came into a main rate of 28%, and have steadily hacked away at it in order to encourage large businesses to see the UK as an attractive place to invest. Very noble, but it doesn’t really help the contractor who may have been hoping for a proportional drop in the lower rate of corporation tax as well.
There was also some noise from Mr Osborne about the pursuit of offshore tax avoidance, a continuation of the policy statement issued last Autumn. The incoming Finance Bill this year will lay out the finer details, but there is expected to be some form of agreement between the UK government and the traditional tax haven territories like the Isle of Man and the Channel Islands. What form this takes and what impact it will have on the powers of HMRC one can only guess at right now. In the meantime, HMRC continue to use scare tactics in the form of tax demands for those contractors who have used old EBT schemes, in the hope that fear will generate additional revenue, despite the vast majority of contractor schemes being perfectly legal.
In the Chancellor’s defence, there was also some positive news regarding income tax for contractors. The long awaited ‘nil rate’ tax band on the first £10,000 of PAYE earnings is something that all contractors will benefit from in 2014. Further good news was that the September 2013 fuel duty increase of 3p is to be cancelled, which will mean more in the pocket for those who drive long distances to fulfil contracts. A populist decision that didn’t cost the Chancellor too much was cutting beer duty by 1p, which predictably received a rousing cheer in the Commons. It all helps.
Putting the tax news to one side for a moment, arguably the most interesting news was regarding the Government’s plans to kick-start the housing market in the UK. The ‘Help to Buy’ scheme will come into effect from the start of next month, and will be the first instalment of the scheme. This initially allows anyone looking to buy a new-build home to put down a 5% deposit, with the Government providing a further 20% deposit via an equity share loan. The Government loan has to be repaid when the property is sold or the mortgage repaid, and starts to attract interest if not settled after 5 years. The main obstacles will be that it is only available via participating house builders, and not all lenders will accept the equity share arrangement from the outset. Any stimulus for the housing market is good news though, and time will tell whether this one will be effective. Part two of the scheme will be launched from the start of 2014, and applies to re-sale properties as well as new ones, which promises to be more appealing to more contractors.
There was another announcement that got lost in the media attention around the Help to Buy scheme, which was an extension of the Funding for Lending initiative that the Bank of England started in 2012. This scheme made cheap funds available to lenders for mortgage funding, and is partly responsible for the steady drop in contractor mortgage rates this year.
The extension of this scheme, alongside the Bank of England’s remit changing from inflation control to more pro-active monetary policy measures, mean that there is plenty of positive news for contractors looking to buy their new home in the next year or two. All of which helps to bide the time until the next budget…
Article by: Taj Kang, Operations Director at Contractor Mortgages Made Easy
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