31 Mar 2021
IR35: How the 2021 budget shakes out for contractors
The 2021 Budget has been and gone, and despite COVID, chancellor Rishi Sunak offered no further delay or change to the IR35 reforms going ahead on April 1st. So what does this Budget actually mean for contractors? Here are the top 10 takeaways related to IR35:
1. Off-Payroll Work in the Private Sector
Limited company contractors who work through their own personal service company (PSC) in the private sector may find themselves having to switch to an umbrella company, at a considerable loss, because the IR35 reforms have scared their clients off allowing PSCs.
2. No DISS
Contractors working through PSCs won’t qualify for the Directors’ Income Support Scheme – leaving them without meaningful COVID relief, since they also don’t qualify for the regular Self-Employed Income Support Scheme (SEISS).
3. Furlough extended
On the upside, furlough payments will continue until September 30th 2021, although further increases to employer contributions (by 10% in July, 20% in August, and another 20% September) mean many umbrella companies that want to support their contractor employees will be unable to afford to.
4. Corporation Tax hike plus Small Company Rate
Corporation Tax is to rise from 19% to 25% – but not till 2023, to allow the country time to recover from COVID.
Companies turning a profit under £50,000 will benefit from a renewed Small Company Rate and will stay on 19%, with a sliding scale from there up to £250,000 profit. This is good (or at least not bad) news for contractors, most of whom will benefit from the lower rate.
5. No Capital Gains Tax hike
Despite rumours to the contrary, the Budget saw no increase in CGT, and the CGT AEA (Annual Exempt Amount) was actually frozen until 2026. This could encourage contractors who were thinking of closing their companies while they could still claim Business Asset Disposal Relief to delay their plans.
6. Five personal finance freezes
Sunak also announced five other helpful freezes for contractors. The personal allowance, income tax, National Insurance, and VAT thresholds, as well as the lifetime allowance for pension contributions. will be frozen until April 2026:
7. New COVID grants
New Recovery Loans will replace Coronavirus Business Interruption Loans and Bounce Back Loans, and the Treasury plans to help “otherwise-viable” businesses that are running at a loss thanks to COVID by temporarily extending the trading loss carry-back rule from one to three years.
It will also extend the income tax exemption, and the exemption of employer-provided COVID tests and home working equipment from NICs, until the 2021-22 tax year.
8. The Super-Deduction
Despite general excitement about the “super-deduction”, which will allow companies investing in certain machinery and plant assets to claim a 130% first-year capital allowance.until March 31 2023, it’s unlikely to have much direct impact on contractors. Avoid the trap of spending more just to enjoy the tax break.
However, it could represent big savings for client companies, who may then invest that extra money in contractors.
9. Visa reforms for techie migrants
Highly skilled migrants looking for tech jobs in the UK will benefit from what Sunak called “ambitious visa reforms” to combat the talent drought in the sector. They’ll no longer need company sponsorship, and will be able to fast-track their visas if they do have a job offer from a UK scale-up.
10. £180 million for HMRC to fight COVID relief fraud
Definitely don’t try anything dodgy this year when it comes to claiming COVID relief payments. HMRC just received a £180 million cash injection to fight fraud, and now has the power to access your banking information without your permission.
While the lack of immediate tax increases is good news for contractors, the lack of DISS isn’t. And many may feel that going ahead with IR35 reforms that make it harder for large companies to hire flexible workers, in the teeth of COVID and Brexit, is a little too much in the spirit of April 1st.