Mini Budget: What this could mean for contractors?
What can contractors expect from Kwasi Kwarteng’s first mini budget tomorrow?
There have been lots of talk around tax cuts and one of the most talked about is the potential abandonment or delay of the scheduled increase in Corporation Tax. Which will come in the form of a marginalised rate which will affect contractors with profits above £50K. And those with profits of £250K could be facing up to 26.5% Corporation Tax from April 2023.
With this having a major impact on contractors and SME’s it would seem hard for Liz Truss to not take any action on this now.
The other most talked about tax cut is in relation to the 1.25% increase of National Insurance to be scrapped. Which with most contractors being on a minimal salary this will not likely have much benefit, if any.
With the 1.25% increase in National Insurance, an equal increase in dividend tax was sneaked in at the same time. A lot of contractors we have spoken to were not aware the dividend tax has increased to 8.75% from the original 7.5% since 6th April 2022.
Will the dividend tax rate get reversed?
Personally, I am sceptical, as it won’t get the coverage (as it didn’t when it came into place) like the NI increase did.
The Big one in terms of tax cuts – A potential increase in Basic Band Income thresholds
Although it has been brought up a few times now in parliament, the higher rate threshold could be increased to £80,000 (From the current £50,270). So assuming the dividend tax rate remains at 8.75% taking £29,730 in dividends extra. This would result in an extra take home of £27,129 for the year (with the extra tax only being £2,601). So those with their spouses as shareholders will see double the benefit. So this would be a great win for the contractor community after the tough times seen.
It is also possible there could be a reduction in VAT which they are saying will slash inflation. But it could just end up being sector specific.
Will we see the IR35 review Truss promised?
This will be the most important for contractors, will there be any truth in Liz’s promise on the IR35 review? It is probably something we need to accept we need to take with a pinch of salt.
As there has been multiple reviews, consultations and inquiries regarding IR35. In February 2022 the House of Lords published a damaging report into IR35 with clear recommendations on how HMRC can fix it.
With one of those being how CEST doesn’t work and is unreliable. Part of this is it doesn’t include Mutuality of obligation, one of the major factors to determining employment status.
Another major recommendation was the treatment on blanket ban assessments. Which has had a major impact on the contractor market, and is something at Outside IR35 Roles we can help improve in the future.
If Liz listens closely to the House of Lords then we could see some positive changes. So we will have to have our fingers crossed for that.