How the Budget will affect Limited Company Contractors



Limited Company Contractors will be scanning the 2013 Budget to see how it affects them. The main thing that they will be looking for is any changes to IR35 legislation.

Chancellor Osborne has promised that he will STRENGTHEN IR35. Since the Coalition have come in they have dashed hopes from the Professional Contractors Group (IPSE) and from contractors that they would abolish IR35.

They did review IR35 but decided that they would keep it or there was the risk that many contractors would dump their Umbrella Companies and go back to using Limited Companies.

The Government didn’t see that as a good thing as there are over 200,000 contractors using Umbrella Companies paying on average £10,000 a year more in Income Tax and NICs than Limited Company contractors.


However, Chancellor Osborne went further in his Budget last year and promised to strengthen IR35. He has already:-

1. Allowed HMRC to recruited a team of 30 IR35 Compliance Officers based in Salford, Croydon and Edinburgh at a time when HMRC has had to cut back staff by 10,000

2. Introduced, with HMRC, an online IR35 Business Entity Test, created for them by the PCG, and are sending letters out to contractors asking them to sit the test and show proof that they are outside of IR35

3. Brought in rules in Government departments where contractors who earn more than £220 a day and who have been there for 6 months, have to prove that they are paying the right amount of tax, i.e. IR35 and if they aren’t they have to become a permanent member of staff or be terminated

4. Have changed the rules so that ‘office holders’ at an organisation must be permanent members of staff and not contractors

However, this is not likely to satisfy them and there is a danger of there being a further attack on Limited Company contractors in the budget.

After all the Government does prefer contractors to be in umbrella companies rather than Limited Companies and it has the power to force more and more contractors to go down the Umbrella Company route – which is far more lucrative for the taxman and the Treasury.