Budget 2021: Top 10 takeaways for contractors from Rishi Sunak’s ‘could be worse’ Red Book
Nothing new on IR35 to stop April’s reform leaves contractors assessing Budget 2021’s other non-announcements and announcements, to see if the chancellor was a friend or foe.
So a CJRS extension, a small company tax rate, and no DISS are among Rishi Sunak’s moves and non-moves, outlined below. The 10 follow new developments relating to IR35.
Not included in the 10 is a much-disliked plan to foist a new tax on limited company contractors who have just one client; which was mooted but seems not to have hatched.
1. Off-Payroll Working in the Private Sector
“As expected, we yesterday got no mention of IR35 reform from Mr Sunak,” chartered accountant Graham Jenner told ContractorUK.
“It means those limited company contractors lucky enough to have work, but who are forced to switch to an umbrella company just because their client won't allow PSCs anymore, will be significantly worse-off.
“It is disappointing that limited company contractors, with contracts genuinely outside IR35, are still going to have their livelihoods seriously affected, because of end-clients running scared of the obligations under IR35’s changes, perhaps because they simply can't be bothered to carry out the Status Determination exercise.”
'Tax-related attacks on contractors'
Boss of Jenner & Co, the chartered accountant said he now expected an exodus of highly-skilled PSCs -- like that of aircraft engineers he saw following previous “tax-related attacks on contractors,” to repeat itself.
“And just at a time when we need to stimulate the economy,” he regrets, referring to the recovery from covid-19.
“Delaying or, better still, scrapping IR35 reform in the private sector would have been the right thing to do for contractors,” states Qdos CEO Seb Maley.
“But I’m not surprised the changes will definitely go ahead next month -- the government are desperate to roll out reform. My advice to contractors and businesses impacted is to prioritise IR35 compliance immediately."
Contractor group IPSE, which last month started an MP letter-writing campaign to oppose the reform, said it was “regrettable” that the government used Budget 2021 to “push ahead” with the April 6th off-payroll rules.
“We continue to urge the chancellor to delay these deeply damaging changes, which will largely hit sole directors of limited companies”, the group’s Derek Cribb confirmed yesterday.
But James Poyser, CEO of inniAccounts, says he might have spotted one or even two measures alongside the Red Book that relate to IR35 but which, refreshingly, are not ‘deeply damaging.’
'Good, striking, hard-hitting'
Quite the opposite in fact. Pointing to HMRC’s new policy paper, Technical changes to make sure off-payroll working legislation works as intended, he explained:
“One [overlooked development]…is the introduction of a Targeted Anti-Avoidance Rule, which will have the effect that HMRC can track down bogus schemes that are designed to get contractors operating falsely outside IR35. This is good news for everyone working compliantly.
“But perhaps the most striking amendment is [further down the policy paper and relates to] section 61V - and Regulation 22 – concerning providing fraudulent information.
“It will now include information provided by any UK-based party in the labour supply chain. Where fraudulent information is provided, the subsequent liability will be moved to the party that provided the fraudulent information.”
Boss at off-payroll.org, Mr Poyser continued: “This could be very hard-hitting. Today, if anyone in the supply chain provides fraudulent information, the end-client is liable. It means they have to audit, trust agents and all the intermediaries.
“Now, [under this amendment] if someone provides fraudulent information, it rests with them, not the end-client. [So this] might reduce the perceived risk of end-clients dealing with contractors outside IR35 -- and that could be a very significant turning point for hard-working, self-employed professionals.”
2. No Directors’ Income Support Scheme
Another acronym that contractors frantically searched Budget 2021 to find was ‘DISS.' But, unlike ‘IR35,’ they actually hoped to see the four letters appear in the Red Book.
It may even be why Tom Wallace of WTT Consulting billed Mr Sunak’s fiscal package as “probably the most anticipated in some time.”
But PSCs got denied. “The chancellor reiterated that he will do ‘whatever it takes’ to support people and businesses,” says Qdos’ Mr Maley, quoting from Mr Sunak’s Budget speech.
“Yet millions of small business owners have been abandoned and left stranded without meaningful financial help for an entire year. The government must go further -- these workers are key to the economic recovery.”
“There was an opportunity in this Budget to go further,” picks up SJD Accountancy’s technical commercial manager Joanne Harris.
“[For the chancellor to] consider the needs of freelancers and contractors with a limited company set-up, who have essentially been overlooked in terms of appropriate government support so far. The proposal on the table for a Directors’ Income Support Scheme was credible, and could have helped millions more people. But the government appears to have ignored this completely.”
Another accountant Chris James, the chairman of the FCSA reflected: “Contractors pinning their hopes on the very serious proposal….[of the] DISS will be disappointed”.
“The headline-grabbing ‘extra 600,000’ workers qualifying [for SEISS coverage – which was announced on the eve of the Budget] will not apply to incorporated businesses.”
“We are more than disappointed,” tweeted Forgotten Ltd, the organisation behind the DISS proposal. “We need the [scheme] - it's a good, robust proposal that [Treasury minister] Jesse Norman should implement ASAP to protect the jobs of the 7.6 million people we employ.”
Rebecca Seeley Harris, who drew up the scheme from scratch, sounded sombre, telling ContractorUK: “Unfortunately, at the time of the announcement, nothing led me to believe it would be limited company directors [who were part of the 600,000 newly eligible for SEISS]. It’s great that more people have been helped, but it’s tragic for those left behind. This was probably their last hope.”
3. Furlough extended
On the eve of the Budget, the chancellor was reported as saying that, to help millions of individuals through “the challenging months ahead,” he would extend the furlough scheme until September 30th 2021, points out Tax Resolute UK’s Jesminara Rahman.
Law firm Chartergates confirms that under the updated Coronavirus Job Retention Scheme, “employees will continue to receive 80% of their current salary for hours not worked, and employer contributions won’t go beyond National Insurance contributions and pensions in April, May and June 2021.”
“However, from July 2021,” the firm added, “the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September 2021.”
'Contractors would rather be back at work'
“Furlough was extended as expected,” says the FCSA’s Mr James, a director at contractor accountants JSA Accounting. “But of course, most contractors will much rather be back at work than claim a small amount of furlough grant.”
"The extension to the furlough scheme until September is welcome but it totally fails to understand the pressures it places on FCSA members as major employers,” explains Freelancer & Contractor Services Association CEO Phil Pluck.
“The present furlough scheme is unaffordable to [our] members. To further increase employer contributions by 10% in July and then 20% in August and September is simply not sustainable”.
Mr Pluck added that the association’s umbrella companies have always wanted to support their contractor employees but “margins are low and the contracts they work on are short term.”
“As a result,” he said, “they cannot support those workers on terms that means they will suffer substantial losses on furloughed workers whilst still recovering from the body of the pandemic.”
Also not sounding overjoyed at the furlough extension (albeit for not quite as serious reasons perhaps), is Saffery Champness payroll services manager Emyr Rowlands.
He posted: “The CJRS extension will continue to save so many jobs and companies -- however it is also the joy that keeps on giving to all of us in the payroll profession!”
4. A Small Company Rate returns, as Corporation Tax is hiked
Effectively producing a new mixed bag of business taxes, the chancellor yesterday seemed to end the long-established Conservative ethos that lower taxes on enterprise fosters more growth, jobs, productivity and profits.
His range of corporate levy offerings also looks like it allows him to avoid a political trap set by Labour leader Sir Keir Starmer, who had warned that an out-and-out tax increase on companies would be ‘out of touch’ and ‘anti-business.’
'I like it'
“The prominent tax rise [of Budget 2021] was corporation tax – [which will range from] 19% to 25%, but not until 2023,” reflects Mike Hampson, chief executive of Bishopsgate Financial.
“And I liked [Mr Sunak’s move of] maintaining the current rate for companies with less than £50,000 in profits, and the tapering to a new rate unto £250,000 in profits.”
“So corporation tax will be rising in 2023, but it will be tapered,” confirms inniAccounts boss James Poyser. “Those with profits of less than £50k will be unaltered and for those between £50k and £250k, it will be tapered.
“This is good news for contractors, or at least not the worst news as they're mostly shielded from the 25% rate. But we'll need to see if dividend tax rates change to get the full picture.”
'At £50k it's too low'
The Association of Independent Professionals and the Self-Employed welcomed the chancellor’s mixed tax bag, but it isn’t keen on ceiling one.
“We are pleased the chancellor has heeded our calls and outlined plans to reintroduce a small profits rate. However, we believe the £50,000 threshold is too low and will not exempt some of the smallest businesses”.
Yet IPSE’s Derek Cribb backed Mr Sunak’s decision to give preparation time for those companies facing ceiling two -- as did the FCSA, yet it has wider reservations .
“[The chancellor granting] breathing space to both recover and contribute to the country’s growth [is sensible]. However, the increase to 25% represents a substantial increase and pressure on business,” warned Mr Pluck. “[It] may well discourage further investment.”
5. No change on CGT (or BADR), for now
Despite an alert on the eve of Budget 2021 that Capital Gains Tax was firmly in the chancellor’s sights, no increases in CGT rates were unveiled yesterday.
By contrast, the CGT AEA was frozen until 2026, meaning it will remain at £12,300 for individuals, personal representatives and some types of trusts, and at £6,150 for most trusts.
'Will encourage a delay on winding-up'
On behalf of his contractor clients who were maybe leaning towards closing their companies, Intouch Accounting’s head of client services Patrick Gribben sounds cautiously pleased.
He told ContractorUK: “That the Annual Exempt Amount for Capital Gains Tax has been frozen could encourage business-owners to delay plans they may have to close their business while they can still benefit from Business Asset Disposal Relief.
“Of course BADR itself wasn't mentioned and could feature on March 23rd -- the new ‘tax day.’ And it could feature alongside equalisation of rates of tax for capital gains with rates of tax for income tax.”
'Scarier stories, sharp teeth'
JSA’s Mr James, who also advises PSCs reflected: “While there is not much really positive news for contractors at Budget 2021, the scarier stories [like] the permanent erasure of Entrepreneurs’ Relief [simply not emerging], will be a relief for some.”
In other words, Mr Sunak did not brandish “the sharp teeth so many feared” on CGT and other levies, according to Tim Snaith, a partner at law firm Winckworth Sherwood.
“There was no mention of a wealth tax, no wholesale reform to the inheritance tax regime [and] no sign of the increases in Capital Gains Tax that were thought inevitable.
“That is not to say that the door has now closed on these changes,” he warned. “In fact, we think it remains wide open and that the chancellor will turn his attention to some of them in due course.”
6. Contractor personal finance (freezes)
Fresh from contractors being handed seven tips to ensure their personal finances stack up better in 2021, the chancellor has helped them on their way by announcing four key freezes.
SJD Accountancy’s James Foster explained: “It had already been announced that there would only be modest increases to the personal allowance threshold, as well as the basic and higher rate tax bands. But the chancellor went further with a confirmed freeze [in the personal allowance of £12,570] until 2026.”
“Furthermore, contrary to rumours of personal tax increases, the government confirmed that income tax, National Insurance and also VAT thresholds will be frozen until 2026.”
'Pension allowance freeze gives contractors dual-opportunity'
But there’s a fifth important freeze too, also until April 2026.
“[Definitely] positive is the freezing of the lifetime allowance for pension contributions,” says Intouch Accounting’s Mr Gribben, referring to a now-reinforced ceiling of £1,073,100.
“This gives contractors an opportunity to provide for their retirement by making contributions to a personal pension arrangement through their PSC.
“And it could limit the impact of the rise in corporation tax stated for 2023, as pension contributions are tax-deductible for CT purposes.”
7. Cash, the king for contractor sector businesses
“This Budget was carefully choregraphed to focus on the government’s big ticket items, so the furlough scheme for example, but also continued support of businesses by way of grants,” Janet De-Havilland, CEO at Pendragon Consultancy told ContractorUK.
In line with the contractor employment specialist’s assessment, the chancellor said in both his speech and at chapter 2.42 of the Red Book that new Recovery Loans would replace the government's showpieces of its covid-19 corporate financial support programme to date -- Bounce Back Loans and Coronavirus Business Interruption Loans.
'Otherwise-viable incorporated businesses'
Also featuring under ‘Supporting Business’ in Budget 2021’s full report, HM Treasury said to help “otherwise-viable” businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.
The government also said it would extend the income tax exemption and NICs disregard for antigen tests provided by (or reimbursed by) employers, and for employer reimbursed expenses covering the cost of home-office equipment, to the 2021-22 tax year.
8. The Super-Deduction
Hailed by Mr James of JSA as “very generous,” the so-called ‘super-deduction’ from April 1st 2021 until March 31st 2023 will allow “companies” investing in certain new plant and machinery assets to benefit from a 130% first-year capital allowance.
HMT gushed: “This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.”
'If I were a contractor...'
At Intouch, Mr Gribben doesn’t believe that the hype will do much for the contractor sector.
“It's unlikely that the ‘Super-Deduction’ for capital expenditure will provide much relief for the majority of contractors. And it's always wise not to spend money just to save tax.
He advised further: “If you're going to buy the thing anyway, then it's useful. But I wouldn't plan any additional expenditure as a result of this enhanced relief if I were a contractor.”
Nonetheless, contractors might welcome the subtext, suggests inni’s Mr Poyser; or even benefit indirectly if they have an end-client who becomes a ‘super-deductor.’
“Contractors can take heart from the Budget’s announcement related to macro-economics,” began the accountant, who is the founder of off-payroll,org.
“It's clear the government wants to stimulate the economy – the new UK infrastructure bank [to provide finance to private sector and local authority infrastructure projects], eight new ‘free-ports’ and the super-deduction.
“So the government wants companies to borrow and invest. Hopefully this should translate into demand for contractors who provide the flexible skill to deliver strategic projects.”
9. Visa boosts for UK tech scale-ups
With ‘demand’ clearly on his mind too, chancellor Sunak used Budget 2021 to unveil what he described as “ambitious, visa reforms aimed at highly skilled migrants” who want to enter the UK and respond’s to the staffing needs of organisations.
Referring to the seven-point visa reform plan at chapter 2.14 of Mr Sunak’s Red Book, Tech Nation said the chancellor was committing to “harnessing UK scale-ups’ potential, while addressing some of the obstacles they face.”
'Simpler for tech talent'
In an online post, the group sounded most excited about a March 2022 ‘Elite’ points-based visa, due to contain a scale-up stream so individuals with a job offer from a recognised UK scale-up can fast-track their visa.
Tech Nation CEO Gerard Grech said: “The new scheme looks set to remove the need for a ‘third-party endorsement’ or company sponsorship and generally simplify the process for tech talent to enter the UK”.
In his speech, the chancellor revealed that £100million will be handed to HMRC to set up a new 1,000 investigator-strong taskforce, to tackle fraud in coronavirus support schemes.
Mr Sunak also mentioned “new investment in HMRC” but chose not to specify how much exactly. But page 55 of the Budget reveals that £180million has been set aside for such investment, to clampdown on “tax avoidance and evasion”, and notably in tax year 2021/22.
'Iron out glitches'
Projected to raise more than £1.6billion in additional tax revenues between now and 2025/26, the investment should ideally go towards fixing some of the department’s existing problems, appealed the Chartered Institute of Taxation.
“We urge HMRC to use this funding not only to iron out some of the glitches in existing systems, but to develop processes that work smoothly and effectively for both taxpayers and their agents,” the institute said.
'Taxman's FIN notes buried deep'
But more money likely going on Connect and additional compliance staff is not what’s troubling WTT’s Tom Wallace.
“While we knew they were coming, buried deep in the vault of numerous budget notes was those relating to the new Financial Information Notice,” the former tax inspector began.
“For those that do not know, these new HMRC powers will allow them to obtain banking information without either the taxpayer's or the tax tribunal's authority, in order to check a known person's tax position and (in the very small print) for the purposes of collecting a tax debt.
“Note that checking a tax position does not necessarily mean that a tax investigation has been opened, nor that it is a check by the UK authorities; HMRC will use the power on the request of an overseas administration. [But] there are some safeguards built in.”
Despite then outlining those safeguards online -- four in total including HMRC having to inform the taxpayer why the materials are required (except where a tribunal decides otherwise), WTT’s head of investigations is unsettled.
“Like many tax professionals, I see this as giving the UK tax authority more power than it has proved it can handle,” Mr Wallace said. “And within a couple of years we will see it be standard practice for HMRC to issue FINs in all enquiries. For me, that would be a step too far.”
Elsewhere at Budget 2021, chapter 2.104 specifies that some of the £180m incoming to HMRC will be used for ongoing compliance work on the loan charge, including historic disguised remuneration and, it is claimed, “early intervention [work] to encourage individuals to exit tax avoidance schemes.”
Of Budget 2021…
Bishopsgate Financial CEO Mike Hampson told ContractorUK: “Have to hand it to Sunak. From business rates holiday to reduced VAT rate [for tourism and hospitality] to contingency funds for employees and SMEs amid the coronavirus crisis; it is a cautious but sensible Budget to get the country back on its feet given the current circumstances.”
IR35 Navigator CEO Chris Mattingly told ContractorUK: “With no major increases in taxation from a personal and small business perspective, limited company contractors should be pleased with the outcome.”
Qdos CEO Seb Maley said: “On the face of it, the headline grabbing measures in this Budget seem generous -- no immediate increase in corporation tax, a freeze on personal tax thresholds and more support for the self-employed will please many people working for themselves, in the short term at least. Dig deeper though and the cracks in this Budget become clear.”
'Could have been worse; could have been better'
InniAccounts CEO James Poyser told ContractorUK: “The good news is related to small business and Budget policies related to helping them grow [See Chapter 2.138-2.139]. It could be a good time for contractors to consider their longer-term plans and pivot to build their own boutique consultancy firms. There is plenty of scope for this in the market and we are seeing a number of people bring skills together to compete for bigger contracts and manage IR35 risks. However, the notable absence is the lack of help for company directors impacted by covid. They still remain out in the cold.”
JSA Services’ Director of Accounting Services Chris James told ContractorUK: “It could have been worse, and it could have been better.
“But pressing ahead with making it harder than before for big business to hire flexible workers due to the poorly understood, and poorly implemented off-payroll rules, while we start to recuperate from covid, and in the context of a newly independent UK after Brexit, will still seem like folly to many.”