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UK contractors are celebrating a stay of execution over harmful legislation that had been threatening the sector. But, according to Dave Chaplin, Chief Executive of the ContractorCalculator website, there is not much else for them to celebrate in the Pre-Budget Report.

“This year’s Pre-Budget Review clearly demonstrates that the government and HMRC have listened to what contractors have to say,” says Chaplin. We welcome this and hope it is the start of a new era of dialogue between contractors, their representatives and government.”

Of particular relief to contractors is that the government has deferred the implementation of its controversial income shifting legislation. Chaplin feels this will give contractors a boost, albeit a temporary one: “Whilst the Pre-Budget Report signals that the government has not given up on the legislation – which will affect many contractors who run small limited companies with their spouses or other family members – the deferment will at least give contractors and the small business sector more time to strongly put their case against these damaging proposals.”

According to Chaplin, the number of cases where income shifting causes a significant loss in revenue is very small. “How can the government legislate against the minority of small businesses that deserve attention without impacting on the majority of genuine family businesses?” he asks. “No wonder every authority on small business taxation says the legislation as proposed is unworkable. It’s gratifying to see that the government appears to agree.”

The other area that had been worrying contractors was the HMRC’s and the Treasury’s threatened attack on travel expenses tax relief for umbrella company contractors. “This had the potential to hugely damage individual contractors as well as the umbrella company sector, which so many contractors rely on as a highly efficient payroll mechanism,” says Chaplin.

He is sure that the concerted efforts of major players in the contracting sector, in response to the Treasury’s consultation on the subject, has paid off. “The Treasury has learned that the abuse of expenses dispensations by umbrella companies is not as widespread as they believed,” explains Chaplin. “No doubt it also realised that legislation would lead to an exodus by umbrella company contractors into limited companies, with the resulting strain on an already overburdened HMRC likely to lead to much lower tax receipts.”

This good news for contractors came amid a range of other measures that will have little overall impact on the contracting sector. These include the delay of the planned 1% increase in Corporation Tax for small businesses, which had been due in April 2009. At the same time, a reduction in VAT is likely to have little effect on many contractors, but will impact negatively on those using flat rate schemes in certain sectors.

“Whilst we welcome the news that the planned 1% increase in Corporation Tax has been postponed,” says Chaplin, “less welcome are the changes to flat rate schemes that do not pass on the full benefit of the VAT decrease. This suggests the government is keen to encourage some contractors working in certain sectors to move away from flat rate VAT schemes.”

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Who We Are

ContractorCalculator is a leading independent website for the UK contracting industry – most of whom are highly skilled workers in information technology, engineering, electronics, and construction. Independently audited by ABCe, its last audit, in September 2008 showed the site was visited by 113,159 unique Users/Browsers.

There are 1.4 million such workers in the UK today who prefer to run their own businesses and work under contract rather than become employees of specific companies. Their contribution to the economy is crucial to keeping UK businesses competitive.

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