The UK has seen its economy fall by 9.9% in 2020 (the biggest decrease for 300 years) and has the biggest recession of all the G7 nations. But what were the key talking points for contractors? In this article, we delve into the main takeaways for independent professionals and what they will mean to you.
Extension of the furlough scheme
The Chancellor confirmed that the Coronavirus Job Retention Scheme (CJRS) will be extended to 30th September 2021. During the budget, he announced further details, confirming that the scheme will continue in its current form until 30th June 2021. In July, employers will be required to contribute 10% increasing to 20% in August and September. This will mean a reduction in the grant that you can claim from the government for furloughed employees from July onwards.
One abiding criticism levelled at the chancellor throughout the pandemic, is that there hasn’t been enough support for self-employed people and for freelancers. Support has been available for those operating as sole traders and partnerships through the Self Employment Income Support Scheme (SEISS) and it is good to see that this has been extended. The Chancellor announced a 4th and 5th grant that will run to the end of September, in line with the CJRS.
This will now, crucially, include an additional 600,000 newly self-employed who completed last year’s tax returns by midnight 2nd March 2021. This is welcome news for those who have been without support throughout the pandemic, but still, if you trade through a limited company, you are excluded from this scheme.
Recovery Loan Scheme
As the other coronavirus support loan schemes close, the government will launch the new Recovery Loan Scheme on 6th April 2021. This loan will take the place of the Bounce Back Loan and The Coronavirus Business Interruption Loan Scheme (CBILS). They will be 80% government-guaranteed and open to businesses of all sizes that have been impacted by the pandemic.
Tax rises on the horizon
It was rumoured throughout the week leading up to the budget that tax rises were firmly on the agenda for the Treasury. However, rumoured reforms to Capital Gains Tax and national insurance contributions for self-employed workers were not announced.
Instead, the big news was an increase to the main rate of Corporation Tax which is set to rise from 19% to 25% in April 2023, for businesses with profits of more than £250,000. Businesses with profits of £50,000 or less, will continue to be taxed at 19% and a tapered rate will also be introduced for profits between £50,000 and £250,000.
Personal tax thresholds
The government will freeze the income tax Personal Allowance and higher rate threshold and National Insurance Contributions Upper Earnings Limit and Upper Profits Limit at their 2021/2022 levels up to and including 2025/2026.
This means the Personal Allowance will remain at £12,570, the higher rate threshold will remain at £50,270 and the additional rate threshold if fixed at £150,000. The NIC Upper Earnings Limit and Upper Profits Limit will remain at £50,270 for these years.
Investments made by companies will be allowed a 130% “super-deduction” on their tax liabilities. This means that, in theory, firms can cut their taxes by up to 25p for every pound they invest in qualifying new plant and machinery assets between 1 April 2021 until 31 March 2023.
Stamp Duty and 5% Mortgages
The Stamp Duty holiday has been extended to the end of June, with a winding down of the tax break until the end of September. This means that all house purchases in England and Northern Ireland will have no tax liability on sales that are less than £500,000, until the end of June. This will then be wound down to £250,000 until the end of September, and thereafter will return to the normal rate of £125,000.
In addition to the Stamp Duty holiday, the Chancellor confirmed that the 5% mortgages initiative, announced by the Prime Minister in November 2020, is set to come into effect next month. This will mean that the Government will offer guarantees to lenders to secure mortgages for those that have a 5% deposit.
Whilst some may have hoped that the Chancellor would have taken this opportunity to further delay IR35 reforms in the private sector, this was not to be the case. There was no mention of the controversial reforms in the budget.
Coupled with HMRC’s release of a policy paper confirming technical changes to the legislation, minutes after the budget announcement had finished, the government’s commitment to the reforms seems to be steadfast.