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 planIT reacts to the Pre Budget Report Alistair Darling delivered the Treasury's Pre Budget Report (PBR) on Monday the 24th of November. This included a number of changes that will affect contractors, but was more noticeable for the anticipated measures which were absent. Reacting to the Pre Budget Report, planIT Services Managing Director, Adrian Learer FCA said: "The major victories for contractors were the Government deferring action to combat income shifting and their decision not to abolish tax relief on valid travel expenses for umbrella company contractors. "It would seem that Treasury is acknowledging the arguments put forward by planIT and other leading providers in the Travel Consultation process and their promise to continue to promote compliancy and professionalism in the industry. "Overall, planIT's capacity to help contractors has been increased through these changes."
VAT changes The Chancelor's headline announcement in the Pre Budget Report was the reduction of VAT from 17.5% to 15%. This took effect on the 1st of December and limited company clients who are on the Flat Rate Scheme or registered for VAT should now be applying 15% VAT to invoices. The flat rate amount has been adjusted for each business category (for example, the adjusted flat rate is 11.5% for ‘computer IT consultancy & data processing' and 9.5% for ‘business services not listed'). We will continue to advise you of the correct amount of VAT due to HMRC each quarter. This is a temporary reduction; the rate will return to 17.5% on 1 January 2010. Limited company clients need not change their standing orders to account for the change in VAT on planIT's fees as any overpaid amount will be held in credit (this will total £3 per month). Income Shifting The good news for small limited companies with more than one shareholder is that Treasury has announced a temporary reprieve on their planned measures to restrict income shifting. While the Government maintained its position that this practice is unfair, it has decided to delay action due to extenuating circumstances. The PBR concluded: The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting. The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review. Other changes to small businesses The PBR also announced a raft of other changes that will have minor effects on limited company contractors. Highlights include:
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