Budget 2020: What does it mean for the Self-Employed?

EDIT: In the week following the budget, the chief secretary to the Treasury, Stephen Barclay, announced IR35 will be postponed until April 2021 to mitigate the risk Covid-19 presents to contractors and small business owners across the UK.

In his first budget announcement as Chancellor of the Exchequer, Rishi Sunak delivered a confident and positive budget speech in the House of Commons. Centred around the ethos of “getting it done”, he was seemingly appreciative of the fact that investment in education, transport and public services needs to not only increase but also to encompass the whole of the UK. Whilst his announcements around tackling environmental pollution, protecting the UK’s alcohol industry and managing the economic risk of COVID-19 are welcome; we’ve looked into what his announcement means for the contractors and small businesses we work with across the UK.

 

Key Points:

IR35 to go ahead as planned

Entrepreneurs relief cut to £1m

Corporation Tax to stay at 19%

Employment allowance increased to £4,000

National Insurance threshold increased to £9,500

 

IR35 – Off-Payroll Working

Following the Government’s own review into the implementation of IR35 in the private sector it looked likely to go ahead without many tweaks and the budget today has confirmed it will. There was only a fleeting mention of the increased revenue helping to fund the NHS, with Julia Kermode of the FCSA commenting that “the omission is insulting”. The proposed changes to off-payroll working were featured on page 88 of the budget and stated:

The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.

If they were to make any drastic changes this late in the day the Government would lose face and cause widespread consternation so it is a double edged sword for the newly elected Chancellor. It means that contractors, agencies and end clients need to continue preparing for the changes, ensuring ‘reasonable care’ is taken on status determinations. The Chancellor has promised a ‘soft landing’ with no penalties being issued for unintentional non-compliance in the first 12 months but unpaid tax and NI contributions will still be due, so it is vital the supply chain ensure compliance over the coming weeks or risk being liable should an investigation take place.

 

EDIT: In the week following the budget the chief secretary to the Treasury, Stephen Barclay, announced IR35 will be postponed until April 2021 to mitigate the risk Covid-19 presents to contractors and small business owners across the UK.

 

 

Entrepreneurs Relief

It was expected that Entrepreneurs Relief would be reformed, and possibly even scrapped, so many contractors who are directors of limited companies were holding their breath. The reform was less drastic than a total removal of the relief, instead reducing the lifetime gains relief limit by 90% from £10 million to £1 million. Rishi Sunak reasoned that removing the relief completely would deter ‘genuine entrepreneurs’ from investing in the UK and that “we need more risk taking and creativity in this country, not less.” Instead, this reduction means 80% of business owners will be unaffected by the change and will still only pay 10% capital gains tax when they sell or close their business.

 

Corporation Tax

Corporation Tax remains frozen at 19%, the lowest in the G20, in order to ensure the UK is an ‘attractive place to do business’ whilst still raising enough revenue for reinvestment in the public sector. This abandons the 2016 Budget’s plan to reduce Corporation tax by an additional 2% this year to 17%.

To further promote the UK as a business-friendly environment there were promises of investment in high-speed broadband, further investment in rail and road, and incentivising spending on R&D. This favourable freeze and increased investment hopes to inspire innovation and turn the UK into a “21st century exporting superpower”.

 

Tax Payment Extension

HMRC’s Time to Pay service will be broadened, allowing for delays due to the impact of Coronavirus and Brexit. They hope this will provide a ‘cash flow advantage’ to businesses and self-employed workers across the UK who rely on international trade as they adjust to leaving the EU. HMRC have also made a further 2,000 experienced call handlers available to support firms with tailored tax arrangements. Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), described it as a “pro-small business Budget”.

 

 

National Insurance

The increase in the National Insurance threshold is welcome news; rising from £8,632 to £9,500 it will mean more money in 31 million workers’ pockets each year. Self-employed workers are set to save around £78, with permanent employees expecting around £104 each. This is welcome news for many and reinforces the Government’s aim of supporting workers ‘through a fair and sustainable tax system.’ The Employers NI threshold will also increase, albeit to a lesser extent, to £8,788.

 

Employment Allowance

The Employment Allowance has been also increased to £4,000, a 33% rise on last year. This will benefit over half a million businesses, enabling each business to “employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs)” over the year ahead. This boosts the opportunity for investment from small businesses that can employ more staff and afford higher wages.

 

You can find the full 2020 Budget here.

 

If you have any questions on how the announced changed will affect you, please contact your accountant or call our friendly team on 0800 195 3750 and we'll be happy to help!