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Budget 2021: what it means for freelancers and contractors

A breakdown of the Budget announcements affecting self-employed workers 


The Chancellor of the Exchequer has unveiled the Government’s tax and spending strategy for the coming year in the Budget, which he said has been designed to help protect jobs, livelihoods and steer the UK and economy on the path to recovery. 

A number of changes impacting freelancers, contractors and the self-employed were revealed in Parliament by Rishi Sunak, who announced:

  • An extension to the furlough scheme, until the end of September

  • Additional support for groups of self-employed and the broadening of eligibility criteria

  • A Corporation Tax rise in 2023, from 19% to 25% for firms with profits over £250,000

  • A freeze to personal tax thresholds 

  • An extension to the Stamp Duty Holiday, until the end of June


In his Budget speech, Sunak described the changes as “progressive”, “fair” and necessary to “protect the jobs and livelihoods of the British people through the remaining phase of this crisis.”

However, much to the dismay of contractors there was no last-minute delay to IR35 reform in the private sector. As was already the case, the changes will be introduced next month, on 6th April. 

In this article, we’ll round up key points from the Budget that will affect the UK’s independent workforce most.

 

Corporation Tax increase in 2023

As speculated, the rate of Corporation Tax will rise from 19% to 25%, but only from April 2023 and if a business records profit above £250,000 - it’s thought this will apply to 10% of UK firms. 

For the 1.4m companies with profits of £50,000 or under, Corporation Tax will remain at 19% under a ‘Small Profits Rate’. A ‘taper’ will be introduced for businesses that sit in between the two thresholds. 


Furlough scheme extension 

The Coronavirus Job Retention Scheme (CJRS) will be extended to the end of September, as the Government looks to prevent a further rise in unemployment for the foreseeable future. 

Furloughed employees are eligible to receive 80% of their PAYE salary up to £2,500 per month, with employer contributions kicking in from July. 

However, the job retention scheme remains unsuitable for most limited company directors who pay themselves a low salary before topping up their income through dividends. 


Self-employment support widened

Bowing to growing pressure, the Chancellor widened the eligibility criteria for the Self-employment Income Support Scheme (SEISS), also making a fifth grant available.

This means a reported 600,000 sole traders who have filed their 2019/20 tax return now qualify for the £7,500 grants worth up to 80% of their trading profit. 

Those whose turnover has fallen by more than 30% due to COVID-19 will be eligible for the full 80% grant. Under 30% and self-employed workers will receive a sum equating to 30% of their monthly profits. 

Despite this development being welcomed on the whole, campaign groups were quick to point out that millions of other self-employed workers and limited company directors continue to be overlooked and haven’t received any financial support since the start of the pandemic. 


Personal tax thresholds frozen 

With regards to personal tax rates, the Chancellor said: “We're not going to raise the rates of income tax, national insurance, or VAT. Instead, we are freezing personal tax thresholds. Nobody’s take home pay will be less than it is now, as a result of this.”

Therefore the rate at which people start paying tax will be frozen at £12,750 (following an increase next year) from April 2022 to 2026. The higher rate of income tax will also be raised next year, as previously promised, from £50,270 - a figure that will be fixed until 2026.


Loan Recovery Scheme available 

With various Coronavirus business loans coming to an end this month, Rishi Sunak also announced a ‘Recovery Loan Scheme’ which will run until the end of the year. Businesses of all sizes can apply for government-backed loans between £25,000 and £10m, with the Government to guarantee lenders 80% of the loan value.

 

Qdos provides an award-winning range of business insurance policies, advice and representation to freelancers, contractors and self-employed workers - from IR35 insurance and tax liability cover, to professional indemnity and public liability insurances.

 
By:Benedict Smith

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