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Pre-Budget Report: what freelancers can expect

Pre-Budget Report: what contractors can expect
For what it omits, Brown’s PBR may be less painful than contractors anticipate.

Gordon Brown is unlikely to table any measures that would reinforce IR35 when he delivers his imminent pre-Budget Report, a leading tax expert has declared.

Speaking to Freelance UK, Anne Redstone of the Chartered Institute of Taxation said only the chancellor truly knows if the Intermediaries Legislation will be updated later this month.

However new measures to make the controversial tax rule more effective at generating revenue for the Treasury seem “unlikely”, Ms Redstone said.

Lobbyists calling for clarity on the Settlements Legislation, in wake of a dispute between HM Revenue & Customs and IT firm Arctic Systems, were also likely to be disappointed.

“If there is to a change in this area (S660) it would be more likely to follow the Lords decision,” Ms Redstone said, responding to questions.

“It would be a very difficult area to legislate for – there are a lot of definitional problems, such as issues about what work carried out for the company by the spouse is worth.”

Like previous years, the main implications of the pre-Budget Report 2006 for freelancers, small businesses and entrepreneurs will feature in the full report’s small print, not in the chancellor’s speech.

For these hard-working groups the devil appeared in the detail of the Budget in March, when experts said the text revealed a potential challenge to composite and umbrella companies.

“The March announcement indicates that HMRC see the issues posed by managed service companies and composites as different from those posed by limited companies,” Ms Redstone said last night.

“I don’t know if this will be followed through in the pre-Budget Report, probably only Gordon Brown knows!”

However, Her Majesty’s Revenue & Customs have already set up separate offices to focus on composite and managed service companies. “This work has continued,” Ms Redstone said.

High tax levels and the “ever upwards creep of red tape and regulation” are making small and mid-sized companies feel the pinch, the British Chambers of Commerce has told the Treasury.

In its pre-Budget Report submission - a type of wishlist drawn up from members' concerns – the group urged the chancellor to take action on four areas; tax, transport, skills and regulation.

David Frost, BCC’s director-general, said: “Whilst business in the UK is still highly competitive on the world stage it is crucial that the government does not take our position for granted.

“There is growing consensus that Corporation Tax needs to be cut whilst the poor state of our transport infrastructure is hardly a secret.”

It was a “priority,” the group added, that the UK tax burden is lowered, so, for example, the corporate tax rate of 30% should be aligned with the EU average of around 25%.

National Insurance should also be overhauled: “Rules relating to NI should be aligned with those that govern PAYE income tax and placed on a cumulative basis,” the BCC said.

In light of the majority of company executives believing twenty-somethings entering the workforce lack business acumen and skills, despite their own delusions, the Chamber wants reform to education.

Enterprise should become a mainstream subject, the brightest sparks should be intellectually “stretched,” and more study should focus on subjects that “are in the interests of the economy.”

“We are in a period whereby economic growth has been sustained over the long term and we urge the chancellor to take measures to ensure this continues into the future.

“We are calling on him to address our four key areas of concern,” Mr Frost said, “in order to ensure that Britain remains a competitive and attractive place to do business.”

His comments come as the Professional Contractors Group (PCG) has questioned the Labour government’s commitment to the “knowledge economy,” in light of a speech made by Tony Blair.

In a statement, the group said: “In his speech Mr Blair stated: ‘We have a skilled workforce [and] a fair regulatory framework…’ Yet many of the UK’s most skilled workers, who choose to work on a freelance basis, face a range of obstacles in making a full contribution to the economy.”

The UK’s only trade union for freelancers squared much of the blame on Gordon Brown, who the group said, “persists on adding to the burden of taxation and regulation on business.”

John Thomas, chief executive, responded to the Prime Minister’s speech on science and innovation.

“The taxation on freelancers has been unfair and excessively complex for some time,” he said.

“The complicated and unsuccessful IR35 measure and the attempt by HMRC to reinterpret the settlements legislation have both shown that the government is suspicious of, and does not understand, the modern knowledge economy.”

Nov 6, 2006
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