In normal times, people enter the new year with ambitious plans and resolutions, along with a feeling of optimism about the future. In Coronavirus times, the ongoing pandemic continues to hamper business confidence, creating an uncertain climate for anyone who works for themselves.
But that’s not to say it’s all doom and gloom and that 2021 should be written off. With vaccinations underway, there is renewed hope of an economic recovery. This is despite new lockdown measures and the imminent arrival of IR35 reform in the private sector.
To make easing into the year smoother and to prepare you for 2021’s major events, in this article we have highlighted some of the most important developments set to affect contractors.
Brexit - a changing business landscape
While the impact of Brexit is likely to be felt by businesses of all sizes in the coming year, there is at very least a trade deal in place. An agreement with the EU was secured just days before the transition period ended on 31st December 2020, allowing for goods to be traded between the UK and EU member countries without additional taxes.
It’s less clear as to how Brexit will affect UK businesses (such as contractors) providing services (not goods) to clients in the EU. Right now, it looks like there could be some hurdles for contractors to overcome - whether it’s visas, work permits or regulatory requirements.
Given UK businesses must now abide by the rules of the country they provide their services in, contractors should check the government website to learn more about working with clients in Europe.
Self-assessment deadline - fines waived for those unable to pay
31st January marks the deadline for the self-assessment tax return, which all self-employed workers must file and pay on time to avoid penalties. The self-assessment is how self-employed people pay Income Tax for the previous tax year. Along with the January payment, most contractors will also need to make payments on account, which are advance tax payments. These payments are due on 31st January and on the 31st July.
HMRC has said those struggling to pay their self-assessment tax as a result of the pandemic won’t be fined, assuming they can prove that Coronavirus has led to financial troubles.
The Budget - tax hikes on the horizon?
On 3rd March, Chancellor Rishi Sunak will deliver the Budget, which will include plans for recouping some of the £400bn spent on Coronavirus support in the past year. It would be naive not to expect tax increases, with rumours that Income Tax, Capital Gains Tax (CGT) and Corporation Tax could all be hiked in due course.
Whether this will materialise, however, remains to be seen. Certainly, contractors will be paying close attention on Budget day.
Coronavirus - Government support set to come to a close
Soon after the Budget, many of the Coronavirus support schemes come to a close. The final SEISS grant covers self-employed workers up until April, while the furlough scheme will also finish on 31st April, as things stand.
Alongside this, the deadline to apply for Government-backed Coronavirus loans is 31st March 2021, while the stamp duty holiday is also set to end on this date.
In recent days, it has been reported that the Treasury is considering rolling out tailored support for millions of individuals working via their own limited companies. The Director’s Income Support Scheme (DISS) would pay 80% of trading profits (before dividends are taken) up to £2,500 per month. It’s possible that the Chancellor will provide an update on this in the coming weeks.
For more information about the support available to freelancers and contractors, see our COVID-19 Support Centre.
IR35 reform - off-payroll changes to land in the private sector
On 6th April, IR35 reform will be introduced to the private sector. The off-payroll changes mean contractors will no longer be responsible for determining their IR35 status when providing their services to medium and large businesses. Instead, the end client will be tasked with assessing IR35 status, with the risk shifting from the contractor to the fee-paying party in the supply chain.
Contractors are understandably concerned about IR35 reform. However, in recent months the number of businesses taking a compliant approach to the changes has increased significantly.
For example, with the support of Qdos alone, companies have carried out over 15,000 fair and well-informed IR35 status decisions and counting.
After a testing 2020, many contractors will have been glad to see it end. As we look ahead to the coming year, which also presents similar challenges, contractors have an important role to play in the economic recovery, with businesses - many of whom will adopt a sensible approach to IR35 reform - set to rely on the expertise and flexibility of these workers.
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