Spring Budget 2021: what does it mean for contractors?
Yesterday, Chancellor of the Exchequer Rishi Sunak delivered the Spring Budget 2021 announcement. As expected (and much like last year), the focus of the budget revolved around the coronavirus pandemic. With the Government remaining positive that all lockdown restrictions will be eased by the end of June, Sunak pledged that the focus for this budget would be on protecting jobs and livelihoods, supporting businesses, beginning to fix public finances, and helping to rebuild the economy.
Whilst contractors watched with bated breath, IR35 once again went unmentioned in the Budget speech. There were, however, some positives, with the newly self-employed now being eligible to claim support. Read on for an overview of the key points of the Budget 2021 that we think contractors should know about.
Coronavirus and the economy
Starting on a positive note, Sunak mentioned that the response to COVID-19 is working, with now 20 million people in the UK having received their vaccination. However, the Chancellor reported that the financial effects of the pandemic has resulted in over 700,000 lost jobs, and the economy has shrunk by 10%, the largest fall in over 300 years. Repairing the economy will take time, with Sunak pledging £407 billion of measures to support the economy over last year, this year, and 2022.
To help prevent further job losses, Sunak announced that the furlough scheme will be extended until the end of September. Terms remain the same for employees, with them still being eligible for 80% of the salary for hours not worked.
Although this is good news for many, as highlighted in our contractor survey, this system is not fit to be used effectively by most contractors. 70% of contractors did not claim any support throughout the pandemic in 2020, and of those that were able to claim support, only 30% of these contractors used the furlough scheme.
No mention of IR35
Once again, there was no mention of IR35 in the Budget speech or the subsequent 107-page report, with Sunak perhaps feeling there are currently bigger fish to fry. Andy Robinson, Kingsbridge’s Business Development Director comments:
“As expected, no real surprises in the Chancellor’s budget. The prospect of raising an additional £3bn in tax revenue by 2024 from the implementation of the Off-Payroll Reform comes at a pivotal time for the government.
With many businesses embracing the new rules and working hard to assess the IR35 status of their contractors fairly, those businesses who are yet to prepare run the risk of being at a disadvantage when trying to attract the best contractor talent in the UK.”
Meanwhile, Andy Vessey, Head of Tax at Kingsbridge, believes this has cemented that IR35 reforms will go ahead next month, and urges businesses to prepare now for the reforms.
“As I and many others have been predicting, when asked to do so, the IR35 reforms are set to happen next month as today’s Budget said nothing to the contrary. Medium-large sized businesses that were banking on another reprieve must now busy themselves in getting their IR35 house in order but that is likely to be a frenetic task if they have a significant contractor workforce. With such a short deadline to work to, mistakes are more easily made and those organisations may well need the help and support of IR35 specialists such as Kingsbridge, but they need to act now as time is of the essence.”
According to our contractor survey results, only 14% of contractors said they would accept an inside IR35 determination, with most contractors saying they would either increase their day rate or seek alternative employment. With the reforms now due on 6th April, and no mention of any further delay, contractors, recruiters, and end-clients alike must ensure they are ready for the reforms.
The Government will undoubtedly be looking to claw back money from taxes, with Sunak announcing £100 million for a new Taxpayer Protection Taskforce to crack-down on COVID fraudsters who have exploited UK Government support schemes.
Support for the self-employed with SEISS
In terms of financial support for the self-employed, as speculated, the Self-Employment Income Support Scheme (SEISS), was extended for a fourth grant. In addition, there will also be a fifth grant available later in the summer. The Chancellor announced that more than 600,000 people, many of whom became self-employed in 2019-2020, may be able to claim direct cash grants from the SEISS.
In order for newly self-employed workers to be eligible to claim, many of which were ineligible for all Government support last year, they would need to have filed their tax return form before the deadline. Kingsbridge will provide more information on the SEISS when it is announced.
Sunak announced various schemes to protect businesses, with the hospitality sector singled out as one that had particularly suffered, and one to which he pledged extra support. There will be new direct cash grants, and a UK-wide Recovery Loan Scheme, with loans from £25,000 to £10 million available to help businesses of all sizes to recover.
There were also various tax rates mentioned, including retaining the 5% VAT rate in the hospitality, holiday accommodation, and attractions sectors, before being tapered back up to the standard 20% rate.
Sunak announces new projects and work opportunities
There was also mention of new projects, including the first-ever UK Infrastructure Bank which will be set up in Leeds, to finance public and private sector green industrial revolution projects. Also announced was a new group of ‘freeports’. With the UK now fully out of the EU, plans are in place for 8 transport zones to be opened throughout the country.
Sunak states these would generate trade and jobs up and down the country. Hopefully, this will provide potential work opportunities for the self-employed, with contractors in the rail and energy sector looking to particularly benefit from these announcements.
Other notable comments in the Budget
Other points raised in the Budget which may affect contractors included:
- The stamp duty holiday on properties up to £500,000 would be extended until the end of June, with no duty on homes up to £250,000 for a further three months until the end of September;
- The proposed fuel duty increase has been cancelled;
- Corporation Tax will increase to 25% with effect 2023;
- A new ‘help to grow scheme’ to help small businesses develop digital skills, with free training provided;
- No increases to income tax, national insurance or VAT.
Kingsbridge can help you prepare for IR35
With no mention of further delays to IR35, it looks like it is now all but confirmed to be going ahead on the 6th April this year. The Kingsbridge IR35 Status Tool is an award-winning hybrid tool that gives an instant and automated IR35 result, with any indeterminate results passed to our expert IR35 team for manual review. Once you have your inside or outside determination, you will be able to access a full report which outlines the strengths and weaknesses of your engagement, which can then be provided to your fee-payer or end client.