A new Government and a Budget for a new era. This Budget was a spend, spend, spend budget but it’s hard to see where the money is coming from; some from the changes to entrepreneur’s relief, a large slice from the changes to IR35 and another lump from money not sent to the EU but still it doesn’t seem to add up. Overall, this no longer felt like the Conservative budgets of the last 10 years.
Using a football analogy, the budget was a game of two halves, the first, all about the measures the Government is planning for Covid-19, and the second half the more normal Budget proposals and “tub” thumping from the Government back benches. As in earlier years the basic allowances and taxes will be covered in the newspapers and mainline news websites – so this post will cover the items most likely to be of interest to our contractor and small business clients.
COVID-19 measures
- Statutory sick pay (SSP) will be available from day 1 of sickness and in recognition that it is the employer that pays sick pay and not the Government there has been a change of policy. For the period of the Covid-19 outbreak SSP can be recovered from the Government via payroll submissions for the first 14 days of an employee’s sickness. If this works the same way as statutory maternity pay then the Government will transfer funds to the business if the payroll tax and NI is insufficient to deduct SSP. The software suppliers will need to update their systems for this to be filed through RTI;
- For the self-employed and lower earners with no SSP provision, the Government have allowed quicker access to benefits, which can be claimed from day 1 of illness. These benefits will have no requirement to attend a job centre(!);
- Business loans will be made available with Government security of up to 85% of the value;
- Business rates will be abolished for the smallest businesses in the retail and entertainment sectors.
Standard Budget measures
- As widely expected the standard rate of corporation tax will remain at 19% (and not reduce to 17%);
- The national insurance threshold has been increased from £8,632 in 2019-20 to £9,500 in 2020-21. This is something we have wanted for a while, it never made sense that the lowest paid started paying “taxes” (as NI) of 12% with income of just £8,632 (for the self-employed the rate was 9%);
- The standard homeworking allowance which has been £4 for many years will increase to £6;
- Entrepreneur’s Relief is still available but is limited to a cap of £1 million. For contractor companies that may liquidate following the change to IR35 assessment, this would allow these owners to benefit from the capital gains tax relief and pay 10% tax on any liquidation proceeds;
- The employer’s allowance which is currently £3,000 will increase to £4,000. This allowance is available to small businesses to reduce the employer’s NI payment; it is not available to single employee/director companies;
- For those of you claiming Research and Development tax credits (not tax deduction), the rate of payment will be increased from 12.5% to 13%.
IR35
These proposals will go ahead, despite the fact that the legislation will be presented in the Finance Bill 2020 and therefore not become law until the summer. It is very poor law making to apply legislation that is not actually law and I wonder if a contractor will challenge the validity of any payroll deductions made to their limited company in the period between now and the Finance Bill being passed. In the meantime we continue to lobby HMRC for the Employment Status Checker Tool (“CEST”) to be upgraded and made fit for purpose.
For contractor clients it appears that end clients are getting their act together and in the main they appear to be following the early lead set by the banks and large insurance companies and not bothering to assess their contractors. Most contractors are being given the choice of PAYE or umbrella. If the client has done their maths right the after tax and NI outcomes should be largely the same. We are recommending that contractors keep their companies for the time being; we are optimistic that a new CEST will be launched and then many of our contractor clients will be (correctly) assessed as being outside IR35. In which case they will be able to invoice clients again.
If you need any further information on these Budget 2020 measures, then please contact Clearways Accountants for advice.