Surrey, England -- (SBWire) -- 03/11/2013 --The Chancellor is due to deliver his fourth UK Budget on 20th March 2013. George Osborne’s hands are tied to a great degree – thanks to the enormous hole in the Government finances, and the continuing economic malaise.

James Leckie, founder of contracting industry news site, ContractEye, says that the Chancellor should use this year’s Budget to stimulate business investment, and should focus on cutting taxes to encourage spending over saving.

“With the UK economy on the edge of a triple-dip recession, the only way to turn things around is by encouraging both businesses and individuals to spend. Until confidence has been restored, businesses are more likely to hoard profits rather than invest them in people, equipment and research and development.”

Last year, the Government increased the Annual Investment Allowance (AIA) ten-fold to £250,000 per year, and has cut the main rate of Corporation Tax in successive Budgets. However, Leckie argues that further measures are necessary:

“The Chancellor needs to make life easier for small companies by cutting red tape and taxes, rather than introducing new processes such as the forthcoming Real Time Information payroll requirements.”

“The funding gap continues to grow – as traditional lenders are more concerned about shoring up their capital reserves rather than lending to small firms. If UK taxpayers own such large shares in these organisations, why is the Government unable to force them to lend?”

Focusing on contractors and freelancers in particular, Leckie doesn’t expect to see any specific new measures introduced, although the Government’s anti-avoidance stance is likely to grown ever stronger, as the gap between Treasury tax receipts and expenditure continues to grow.

“Last month, HMRC signed a disclosure agreement with the Isle of Man to force taxpayers to come clean about funds they have hidden offshore, and the GAAR is scheduled to become law later in 2013. The Government is getting serious about tax avoidance, so contractors who have used ‘aggressive tax planning’ measures in the past should review their situation with a professional adviser to ensure that they don’t become liable for sizeable back taxes.”

The main policy change most contractors would like to see announced during Budget 2013 would be the abolition of the IR35 rules.

The Government committed to keeping the rules in place during Budget 2011, albeit with an overhaul of the way HMRC deals with IR35 investigations, so the most contractors can expect is some minor amendments to the current rules, says Leckie.

“Contractors would like to have more certainty over the risk they face of an IR35 investigation. The recently implemented HMRC business entity test has been poorly received, and the general guidance provided to taxpayers is muddled and inconsistent at best.”

“I don’t expect any major announcements over IR35, but any refinements to the way the rules are currently administered are always welcome.”

About Contract Eye
Founded in 2006, Contract Eye is one of the UK’s leading contractor news sites – providing weekly news updates, and over 1000 dedicated contracting guides.

James Leckie also runs Company Bug, an advice site for limited company owners, and ITCA, which helps IT contractors compare accountancy providers.