The Bank of England has announced it is to end quantitative easing, placing further doubts on financial help for small businesses and umbrella company contractors, making it more important than ever that contractors make sure they are taking advantage of all they can.
When the Bank of England announced its £250 billion asset purchase plan last March, it was as a last-ditch attempt to stimulate the UK economy. By increasing the amount of money available to individual banks, it was hoped they would be encouraged to lend to business and contractors. Contractors often work under umbrella companies, but still have to pay for their own equipment and training.
The Bank also wanted to reduce the cost of borrowing by purchasing government bonds (gilts). By reducing supply, the demand for new bonds would increase, meaning businesses would be able to borrow at cheaper rates. Additionally, by reducing interest rates, the Bank of England would make it cheaper for individuals and companies to take out loans; the result would be a net stimulation of economic growth.
Had the quantitative easing program worked, many umbrella company contractors would have been encouraged to establish their own businesses, stimulating the economy into new growth and reducing unemployment by creating new workplaces.
However, this didn’t happen. In 2009, more than half of all bank loan applications were turned down. Many firms were forced to take out expensive unsecured loans to stay afloat. Money that should have been earmarked to fund small business growth was instead used to buy bank assets – or simply hoarded.
Despite all this, a modest increase in financial activity at the start of 2010 created optimism among freelancers, who saw it as a sign that bank credit would be more easily available. However, the Bank of England saw it as the onset of uncontrollable inflation instead, and decided to halt quantitative easing whilst maintaining interest rates at 0.5%.
At present, the message to umbrella company contractors is that economic growth looks uncertain, and they should be cautious to make sure that they are paying the correct amount of tax.
