The 2011 budget brought a range of measure which will be good news for contractors as well as making a number of announcements about the expected state of the economy over the next few months and beyond. Most notably the Chancellor stated that annual GDP growth is expected to be 1.7% in 2011 and 2.5% in 2012 with further rises in subsequent years. Inflation is expected to remain at between 4% and 5% during 2011 before dropping below 3% in 2012.
The Chancellor said that he ‘aims to make the tax system fair, simple to understand, and easy to comply with’.. Well, we can but hope! Here are some key benefits of the latest budget:
- The ‘small profits’ tax rate, which applies to the vast majority of contractor companies, will fall from 21% to 20% from April 1st 2011.
- The personal tax allowance, which rises by £1,000 on 6th April 2011, will rise by a further £630 in April 2012.
- Mileage allowances have increased to 45p per mile for the first 10,000 miles from 6th April 2011 and 25p for additional miles on top, which will be a definite advantage for contractors with clients in multiple locations around the country
- The VAT registration threshold was raised to £73,000, which will help those smaller contractor business that were ‘on the brink’ but preferred not to register if they did not have to.
- The Entrepreneurs’ Relief lifetime allowance will double from £5m to £10m from April 2011
- The Enterprise Finance Guarantee scheme is set to continue until at least 2014. The scheme aims to provide lending to SMEs where traditional sources of loans have been inadequate.
- A new Enterprise Capital Fund will be set up, to encourage high grown small businesses
- Tax avoidance clampdown to raise £1bn this year
- IR35 stays the same – the Government is committed to improving how it’s administered which will include dedicated HMRC helplines and better guidance notes.