George Osborne yesterday gave the creative industry a shot in the arm in the shape of corporation tax relief for the makers of UK films, video games, theatre productions and high-end television shows.
The chancellor’s offerings, promised in Chapter 2 of Budget 2014, should placate both the CBI, which called for such tax relief, and the IPPR, which has accused ministers of “not taking seriously” the creative sector.
The film tax relief, introduced in 2007, will be made available at 25% on the first £20million of qualifying production expenditure, and 20% thereafter for small and large budget films from April 2014.
In a move designed to widen the pool of film-makers who can benefit, the chancellor also said the government was committing to reduce the minimum UK expenditure requirement from 25% to 10%. It will also modernise the relief’s ‘cultural test.’
Clearly inspired by healthy uptake of the tax breaks by film-makers, Mr Osborne says a similar initiative to ease corporation tax will be launched for productions in the theatre sector, especially those in the regions, starting from this September.
Budget 2014 also announces that the government will extend video games tax relief to goods and services provided from within the European Economic Area, and apply a cap on subcontracting of £1m per game (subject to state aid clearance).
In addition, the relevant rules will be clarified so that only those game and television programmes qualifying for the corporation tax relief will be treated as separate trades.
Although all these tax breaks are squarely aimed at senior creatives in charge of TV, game, theatre and film productions, the chancellor didn’t ignore freelancers – the workers such creative projects depend on.
For example, the collection of NICs for such self-employed individuals will in future be simplified, as Class 2 NICs will be paid at a single stage through the self-assessment process, not at two stages as is currently the case.
Daniel Mepham of ClearSky Accounting is pleased for his self-employed clients, although they will have to wait until April 2016 before the simplification kicks in.
He told FreelanceUK: “This is a good move as it does simplify the collection of NICs, which is currently partly collected via self assessment (Class 4) and partly throughout the year, typically by Direct Debit.
“The changes will make the administration of taxes easier for sole trader freelancers... [so] the government is heading in the right direction”.
Another move Mr Osborne made yesterday which the accountant says will help freelancers, especially female professionals, is the chancellor’s promise to extend the UK’s childcare voucher scheme to the self-employed.
PCG, the trade group for freelancers, also welcomed the extension of the scheme, saying that it suggests the government is starting to consider those people who are running their own businesses.
Pointing to the full statement of Budget 2014, the group added “There is also…a fuel duty freeze, which is great for freelancers who travel across the country from client to client.
“[In addition], raising the personal allowance to £10,500 [from next month] will also be universally welcomed across the labour market, including by those in business on their own account.”
But PCG’s Simon McVicker hinted that freelancers would be disappointed by the Budget giving the green-light to the proposals to tax ‘false self-employment’, which will take effect from next month.
He said: “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.”
Other supporters of independent professionals are equally alarmed at the Budget confirming the introduction of the ‘pay-up first’ avoidance rule, under which taxpayers must settle the tax they are accused of avoiding, up front and without an appeal.
Chartered accountancy firm Kingston Smith warned: “The proposed measures announced in the Budget are due to come into effect from the date of Royal Assent, and they will relate to anyone who has an open appeal or enquiry.
“Allowing HMRC to demand the disputed tax to be paid upfront [without the right of appeal]…may force a number of people who participated in these arrangements in good faith into bankruptcy.”
Another accountancy firm, SJD Accountancy, which specialises in the tax affairs of the self-employed, tried to put the new power for HM Revenue & Customs into context.
The firm said: “A small band of freelance contractors who used tax mitigation schemes – which may have been legal at the time of use – will be hard hit by this Budget, because the ‘pay-up first’ avoidance rule is going ahead full pelt.
“But the typical freelancer, who runs their own sole trader business, a limited company or who operates through an umbrella company, has been given no new measures to contend with and, in that regard, Budget 2014 was positive.”
In line with this reading of the Budget, there were no new measures to strengthen IR35; the small companies profits’ rate will still be 20% in 2015 and the VAT registration threshold will rise (as it usually does every April) to £81,000.
But less positively for workers classing themselves as self-employed, April 2014 will see the government bring in legislation to counter the disguising of employment relationships in limited liability partnerships (LLPs).
In fact, except for simplifying Class 2 NICs, the only other relief from taxation that Budget 2014 offers the self-employed is a promise to set up a new online system to enable those of them in financial difficulty to have a payment plan for self-assessed income tax.
Emily Coltman FCA, chief accountant at online accountancy solution FreeAgent, explained: “There was no additional information about this, so it’ll be interesting to see how flexible HMRC are prepared to be on this. For example when it comes to payment terms, will they expect payment of a £5,000 debt at £50 per month? Only time will tell.”Editor's Note: Related Reading -
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