2020 was a challenging year for independent workers, not least because of the Coronavirus pandemic. The crisis, along with Brexit and IR35 reform has created a sense of uncertainty among many freelancers and contractors when it comes to work, their personal finances and government support.
While the rollout of an effective vaccine offers some light at the end of the tunnel, it may not be an altogether smooth ride. So here, Contractor Weekly outlines some key things freelancers should keep in mind as the new year sets in.
In January, the government will set out the eligibility criteria and the amount self-employed workers (not limited company contractors) can claim for the fourth round of the Self-Employment Income Support Scheme (SEISS).
The fourth and potentially final instalment will cover the period from February to April 2021. The criteria for the third instalment was criticised here for being stricter and more complex than the previous grants and there is nothing to suggest things will change for the fourth.
Claimants eligible for the grant must prove their business has been affected by “reduced demand” or be “unable to trade” during the qualifying period, because of the pandemic.
In 2020, Chancellor Rishi Sunak ignored enormous pressure to tailor the Coronavirus support available to a reported 3m freelancers, contractors and small business owners who operate via their own limited company. These individuals fall between the cracks of the support, finding themselves ineligible for the SEISS and unable to count dividends towards the furlough scheme.
Will things change in 2021? It remains to be seen, but so far recommendations from experts, which include a Director’s Income Support Scheme, have fallen on deaf ears.
Brexit. The UK has secured a trade deal which has now been approved by ambassadors from the 27 EU member states. The deal sets out the framework for trade once the UK leaves the EU single market and customs union on 31 December.
So how will the new deal affect the UK’s smallest businesses? Well, the free trade agreement means there will be no taxes on goods. However, that’s not to say self-employed people living in the EU or working overseas will not be impacted. As of yet, there is not a lot of detail regarding the service sector, which accounts for about 80 per cent of the UK’s economy. This is something to keep an eye out for as the UK begins its journey outside the EU in 2021.
More details and updates can be found on the government website here.
Reform to the IR35 legislation is due to come into effect in the private sector on 6th April 2021. The rules, which were delayed for a year because of the pandemic will in large part mirror the changes that were rolled out in the public sector in 2017.
Private sector IR35 changes will shift the burden of determining a contractor’s IR35 status from the individual to the hirer. This applies to medium and large businesses, with small companies exempt from the reform.
If HMRC believes the hirer has incorrectly assessed a contractor’s IR35 status, businesses risk a hefty fine. For this reason, some companies have stopped engaging independent workers.
As a result, IR35 experts are advising contractors to speak to their clients in advance of the rules coming into effect to discuss their strategy for managing the reform.
The Chancellor will announce a new government Budget in March and on the agenda is a series of tax hikes, including Income Tax.
The pandemic inflated the UK’s deficit to around £400 billion in 2020 and the Treasury needs to raise funds in order to help repair the UK’s economy.
Income Tax raises approximately £200 billion a year, while it was reported last month that the department confirmed there are likely to be significant increases in this area.
Meanwhile, the government’s tax advisory body has recommended a tax raid on buy-to-let properties and other forms of wealth as a means of bringing in more than £14 billion. Contractor Weekly reported on this here.
Prior to the Chancellor’s Winter Economy Plan in September, there were rumours circulating that the self-employed could face numerous other tax rises, including National Insurance Contributions (NICs) and Capital Gains Tax.
These rises have not completely been ruled out and freelancers should be wary of higher tax bills in the coming year.
So a potentially uncertain 12 months beckon, with concerns about the pandemic not helped by the arrival of IR35 reform in April. However, with flexible workers expected to play a key role in the economic recovery, IR35 reform said to be “manageable”, a Brexit deal in place and vaccinations underway, strong demand for contractors is likely to remain in 2021.