Will Contractors Gain From The Coalition?

Following the formation of the new Government a coalition agreement was published which set out key joint policies. We have picked out below some of the key policies that are expected to affect contractors in the coming years.

Increase in the Employers National Insurance Threshold

The new Government will hold an emergency budget within 50 days of the coalition agreement which is expected to include details of an increase in the Employers National Insurance Threshold.

This increase will primarily benefit Umbrella Company Contractors rather than Limited Company Contractors since Limited Company Contractors already reduce the affects of Employers National insurance by setting an artificially low salary and taking income in the form of dividends. Umbrella Company Contractors on the other hand receive all income under the Pay as You Earn (PAYE) system and are therefore not only subject to Income Tax and Employees National Insurance contributions but also Employers National Insurance contributions. Employers NI is currently 12.8% uncapped above the secondary threshold (£5,720 per annum) therefore Umbrella Company Contractor could achieve a substantial saving (that is so long as they are around following the implementation of the Agency Workers Directive!).

Overall, this policy follows the Conservative pledge to reduce spending rather than increase taxation.

Personal Allowances

There will be a substantial increase in the Personal Allowance from 2011, however this will not initially be up to the full £10,000 promised by the Liberal Democrats, rather the Personal Allowance will increase a significant amount each year.

The Personal Allowance is currently £6,475, meaning that an individual does not have to pay Income Tax on the first £6,475 he or she earns over the course of the year. The increase will be a major boost to all contractors, whether operating via a Contractor Limited Company or an Umbrella. Depending on any rule changes affecting ‘Income Shifting’ Contractor Limited Companies could become even more popular in situations where a contractor pays his / her partner a salary up to the personal allowance in order to save tax.

Spending Review

A full Spending Review will be conducted at which a number of large public sector projects will be cancelled or scaled back (the Identify Card System has already gone).

Those contractors working on public sector contracts may find life gets tougher however those working in the private sector should not see any real drop in demand. In actual fact things may improve in the private sector due to the fact that companies will be paying less in taxes, meaning they have more funds available for new activities.

Immigration Cap

An annual Immigration Cap on migrant workers from outside the European Economic Area will be imposed.

The Agency Workers Directive (AWD) & IR35

Policies on the Agency Workers Directive and IR35 are expected to be formed in the coming weeks. While in opposition the Conservative Government said that it would look at IR35 if it were to take power at the General Election.

Commonwealth Contractors

Commonwealth Contractors is a collection of highly skilled professionals from the Commonwealth and beyond. We partner with OISC Registered Immigration Partners capable of professionally representing Tier 1 Visa Applications / Extensions AND Tier 2 Licensed Consultancy & Associated Trust Partners who may be prepared, where required, to sponsor a Medical, Information Technology or Engineering Professional on a Tier 2 Visa (formerly UK Work Permit).

To find out more call Commonwealth Contractors now on 0330 390 9021 or Submit your details now and we will get right back to you. Please be prepared to send a copy of a recent CV so that we can pass to interested partners.


Leave a Reply

Your email address will not be published. Required fields are marked *