Pre-budget Report Cautiously Welcomed by Danbro

Specialist accountants Danbro have given a cautious welcome to Chancellor Alistair Darling’s 24 November Pre-Budget Report, which leaves unchanged – but under review – rules governing two significant areas for contractors and freelances.

Delivered against a backdrop of the continuing global financial crisis, Mr Darling’s report contained a £20 billion injection to stimulate the economy and help businesses and families.

Following consultation on tax relief on travel expenses for temporary workers, the government has decided to leave the current rules unchanged. However, HM Revenue & Customs (HMRC) will be working to ensure the existing regime is properly applied, with the warning that the government may return to the matter if compliance does not improve. Danbro entered into the consultation process earlier this year, emphasising the fact that HMRC had the powers already in place to ensure compliance in the market place with the current rules.

The move means that temporary workers operating through an umbrella company or agency, using an overarching employment contract, can continue to claim tax relief on their travel expenses. HMRC will be paying close attention to the abuse of such arrangements, including situations where employees receive a significant part of their income from their employer in tax-free expenses, regardless of what work they have carried out.

Moves to outlaw the practice known as "income shifting", common in family businesses, including those run by contractors, where income is transferred from one person to another to maximise tax efficiency, have also been put on hold. The government has consulted on the issue but will not bring forward legislation in the Finance Bill 2009, keeping the matter under review instead. Other Pre-Budget measures that will, or could potentially, affect contractors include:

• the £600 increase in the income tax personal allowance, announced in May 2008, is made permanent, with a further increase of £130 in April 2009.

• all national insurance contributions will rise by 0.5% from April 2011

• an additional higher rate of income tax of 45% for incomes above £150,000 will apply from April 2011.

Danbro managing partner Damian Broughton said: “The challenging financial conditions are affecting everyone, including freelance and temporary workers, who can be particularly vulnerable when firms are seeking to reduce their overheads, so any government action that helps to stimulate the UK economy and help businesses must be welcomed.

“Contractors will particularly welcome the decision not to change the rules on expenses. If they operate through an umbrella company, choosing one with 100% HMRC compliance status, like Danbro, will give them confidence that their expenses arrangements will meet with the taxman’s approval.”

For more information contact Danbro at their head office on 01253 600140 or their London office on 0207 836 8400  

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