What will the Coalition Government Mean for Contractors?

17 May 2010

After a few days of political horse-trading following this month's indecisive election, the dust settled on a Conservative Liberal Democrat coalition government-the first in 70 years. While little is certain, there are likely to be some changes which will affect contractors when George Osborne delivers his 'emergency' Budget on Tuesday, 22 June, as HM Treasury has just announced. There are likely to be important announcements about CGT, income tax, NICs, IHT, corporation tax, capital allowances and VAT.

Labour's planned rise in employer's NI is almost certain not to go ahead as it is seen by both parties as likely to have an adverse effect on job creation and was widely attacked as a "tax on jobs" leading up to the election.

Another headline coming out of the recent coalition agreement is a predicted increase in capital gains tax. If this goes ahead it may affect those contractors avoiding the higher rate tax on dividends by sheltering their earnings within the company to take out when they close the company subject to (currently lower) capital gains tax.

On the subjects of IR35, the pre-election position of the conservatives was a planned review of the legislation and for it to be made a priority in a new independent Office of Tax Simplification while the Liberal Democrats were considering removing it altogether. While this seems to indicate common ground, it's unlikely that the new government will move too quickly on anything that will potentially lose them tax revenue in the face of the overwhelming budget deficit.

The parties have agreed to work to limit the application of the EU Working Time Directive in the UK. With the planned implementation of the Agency Worker Regulations (AWR) in October 2011, it will be interesting to see how the two opposing positions on European initiated legislation between the parties will play out in regards to the AWR. The legislation is intended to give more equal rights to agency workers, but critics claim it will have an adverse effect on temporary workers and employment agencies by increasing bureaucracy and hiring costs-making agency workers less employable.

Whatever happens in the new government's first budget, planIT will keep you informed of changes that will affect you as a contractor and work hard to ensure all of our clients remain both compliant and tax-efficient.