The Chancellor’s Budget pledge to ‘protect jobs and livelihoods’ welcomed, but there are ‘clear cracks’ in the government’s plan
Addressing the House of Commons in the 2021 Budget, Rishi Sunak vowed to “protect the jobs and livelihoods of British people” as the UK emerges from the COVID-19 crisis.
In his speech, the Chancellor extended the Coronavirus Job Retention Scheme (CJRS) until the end of September and made another grant available under the Self-employment Income Support Scheme (SEISS).
There are no changes to the criteria for the furlough scheme. However, around 600,000 newly self-employed people who previously failed to qualify for SEISS are now eligible, if they have filed their tax returns for 2019/20.
The fourth SEISS grant will cover the three months to April and claimants can receive 80 per cent of their average profits up to £7,500. The fifth grant will be available from May onwards, accounting for the period until September.
Sole traders whose turnover has fallen by more than 30 per cent because of the pandemic will continue to get 80 per cent of their average profits. If the drop is less than 30 per cent, they will receive a grant worth only 30 per cent of their average profits.
Budget ‘ignores’ large groups of self-employed
The latest package of support for the self-employed has been mostly welcomed by industry bodies. But even so, large groups in this sector still remain unsupported.
Derek Cribb, CEO at IPSE, said: “After almost a year, this support will be a tremendous relief to hundreds of thousands of self-employed people who could not access SEISS because they had not yet filed a full tax return. […] While this support is welcome, however, we also urge the Chancellor to look again at groups such as limited company directors, who are still excluded from SEISS.”
Joanne Harris, Technical Commercial Manager at Nixon Williams added: “There was an opportunity in this Budget to go further and 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 Director’s Income Support Scheme (DISS) was credible and could have helped millions more people, but the government appears to have ignored this completely.”
Chancellor resists tax hikes (for now)
In his Budget statement, Sunak said that although the unemployment outlook looks more positive than initially forecast, the economic harm caused by Coronavirus has been “acute” and warned that it will take a “long time to recover.”
The Chancellor outlined a three-part plan, which included supporting businesses as they reopen, fixing public finances and building the future economy.
As part of this strategy, Corporation Tax will increase from 19 per cent to 25 per cent in 2023 for businesses with profits of £250,000 or more. Firms with profits of £50,000 or less will continue to pay 19%, with those declaring profits in-between £50,000 and £250,000 to pay a tapered amount. The Treasury estimates this reform alone would raise nearly £17 billion a year in taxes.
While Income Tax and National Insurance Contributions were not raised, the Chancellor did freeze the Income Tax threshold. The move is expected to bring in £8 billion a year for the Treasury. According to the Office of Budget Responsibility (OBR), freezing the threshold will see 1.3 million more people pay Income Tax and a million more pay the higher rate.
Responding to the Budget, Seb Maley, Qdos CEO 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.”
Government policy will ‘stagnate skills’
Maley highlighted that contractors are key to the UK’s economic recovery yet there was no mention of delaying or even “scrapping” IR35 reform, which will come into effect on 6th April. This could have a devastating impact on contractors, particularly those who have received no support for an entire year.
IT contractor Philip Ross echoed Maley concerns, explaining that although any help would have been welcomed, the Chancellor has a “tinted view of the self-employed.”
He said: “The message we get is you pay your taxes, but don’t expect any Coronavirus support; you pay your taxes, but are not allowed to compete as a business; and if you pay your taxes like an employee, don’t expect any employee rights.
“Businesses become successful through innovation and the use of specialist skills and resources that contractors provide. Freelancers allow for the fast flow of skills and resources from one company to another, which contributes billions of pounds to our economy – but policies like IR35 reform will create a stagnation of skills, which will do nothing for productivity and innovation.”
Hats off to Hays Recruitment pointing out the obvious to the Treasury & HMRC regarding ditching IR35.
Super Bold of Hays to go public with their letter.
Go BIG or go home !!!
Stanford great West Coast College but well used to losing in the Pac 10.
Strategy advice from Yale: ditch IR35 now before the embarrassment of the inevitable U-Turn.
Hays know more about this issue than the Treasury !!!
Yes, good for Hays to finally speak up in this weak assed, boot licking, cap doffing industry.
Even at the eleventh hour it’s better than just handing Treasury the lube.
Unfortunately, the government record on listening to experts is to stonewall sensible voices with media nonsense and “flood the zone with sh*t” until the news cycle changes.
More experts need to speak up.
The “experts” all have vested interests in IR35. Contract reviewers for example.
The PCG/IPSE need it to fight against to keep people as members. Their demand for certainty was dense – they got the obvious certainty (you’re all inside IR35) as people have been telling them for years.
They kept Qdos out on a pretext, because accountancy firms are among the few who will also lose out if all are inside IR35.
As one of the 3 million excluded and a business owner I’d actually like Sunak and Hancock to give back the money looted from the treasury under the contracts for mates scandal. The VIP channel for the ‘connected’, we are not being governed we are being abused.
Yet, No support for contractors/ free lancers.
Yet, No support for contractors/ freelancers.
Majority Clients are not giving any contracts whatsoever outside of IR35 because of government directives. Freelancing is dead.
“No one left behind. In it together. Whatever it takes.” – Rishi Sunak
Dismissing the fate of the 3 million excluded as “utter rubbish” – Boris Johnson, Prime minister’s questions
The 3 Million “Left-Behinds” do elicit sympathy.
It would be useful to obtain some classification of the general groups.
I have analyzed the following but am interested in understanding the range.
1. Contractors forced or encouraged to work under an Umbrella Company and then the Umbrella Company refused to Furlough the Contractor. Huge Sympathy.
2. Contractor working as a Sole Trader, not running any Payroll Scheme, and started trading on or after the 6th April 2019. Would have normally submitted Tax Returns in FY 2020, say to 5th April 2020. Really unfortunate timing and difficult to Police. Lots of issues around inflating income at Year end. For example issuing a large Invoice on 31st March, then issuing a large Credit Note on say 20th April. Perfectly legal but of course the Furlough would be based on the “Super Profit”. This would/could have occurred across all sectors. Builders, Cab Drivers, Hairdressers etc. The fraud opportunities were endless.
3. Sole Traders submitting a FY 2019 Tax Return showing little or no profit.
4. Sole Trader submitting a FY 2019 Tax Return showing profits in excess of £50k.
5. Contractor running a PSC and a Payroll Scheme but paying themselves a minimum salary say £8300, just under the minimum level before Employers & Employees NI threshold kicks in. Then taking the additional income as Dividends. This Tax strategy was the most advantageous except if one scenario arose namely Covid and the terms of Furlough which was based on the PAYE element only.
Would be interested in other scenarios.
Your shallow “analysis” of the “Left-Behinds” tells me you have no idea of the realities of any of these businesses. It’s not all about maximising profit and “dodging tax” although working within the rules is not tax evasion as you no doubt aim to suggest.
All these groups (and most are on a sliding scale between the ones clumsily listed and missed out) will pay much more tax than the equivalent permanent employee. Who is more deserving under that criteria? Six taxes compared with two, do your analysis properly, run some real world figures.
The real question is why does the government pick on these minorities when there are large affluent groups of society (pensioners, trust funded) paying very little on similar unproductive incomes.
Your bestowing sympathy on some of these “more deserving” builds a narrative previously portrayed by the revenue’s totalitarian Behavioural Insights Team.
Nice try. Who are you and what is your motive?
Just trying to understand the issues. Many of us run PSC’s and as sole Director it was entirely within our gift to Furlough ourselves and pick up £2500K per month and chill out.
Many of us declare and pay Dividends also. As you state it’s all on a sliding scale. Some pay 100% Dividends, some 50% PAYE / 50% Dividends, and some 100% PAYE.
To be honest there is only a marginal differential in either method. SEISS paid £7500 over 3 months, so £2.5K per month anyway.
OK it’s not a perfect solution I agree, but am genuinely interested in what solution you are proposing.
It doesn’t take much deduction, it’s basically that Furlough should be based on Dividends. Nothing wrong with that, except the Scheme ruled it out. Maybe because Keir Starmer would have had a field day, and the political optics would have been problematic.
For example a Trustafarian in Notting Hill with 200,000 shares in Microsoft would also be able to claim Furlough on Dividends.
There is no suggestion whatsoever that paying 100% in Dividends is either illegal or Tax Dodging, it was just an unfortunate Tax Strategy in the face of Furlough.
Your #5 category ceased to be a “tax strategy” years ago after dividend tax hikes. A business model of low wages supplemented by dividends when irregular invoices are paid. It’s no longer for tax efficiency but you would already know that. Most in that #5 group get furloughed 80% of that small wage but it’s unliveable. That’s the left-behind.
DISS is a workable solution refused by Sunak for no good reason, why? Politics, power but not reasoned decision making.
DITCHING IR35 IS THE OBVIOUS ANSWER – it costs nothing, brings in lots of tax revenue for the treasury and retains our highly skilled flexible workforce so envied by the rest of Europe.
Again, there’s no reason NOT to abandon IR35 that makes any sense. If you are a serious analyst you would see the only people to gain are the big offshore outsourcing firms. The sort that lobby, donate to and are owned by Tory party members. Sunak’s billionaire family own Infosys but there are hundreds of similar party connections, foreign money is making UK political decisions.
Covid and lockdown need not affect most high tech freelancers, they don’t need furlough, they are ideal remote workers. IR-35 effectively bans firms from using domestic contractors in favour of expensive foreign outsourcers that pay no UK tax.
Tell me it’s not so and you’ll be resorting to bluster. Lie, deny, distract is the MO of this government.
Why don’t you have a go at telling me why IR-35 shouldn’t be ditched?
IR35 is a busted flush. Now we learn that HMRC failed to factor in Employer’s NI in their calculations and just assumed all Contractors were not paying it.
Now they are expecting the Agents to pay it so instead of receiving a 10% commission they need to pay 13.4% to HMRC, making a net 3.4% loss for placing an inside IR35 Contractor.
IR35 is a busted flush, totally illogical, and never really tested in the Public Sector (as usual). Monopolies in my experience are complacent. Of course now they are trying to roll it out in the real world, against realists used to scrutiny it’s a car crash.
My Agents don’t even bother phoning me for inside IR35 roles. Not doing any Umbrella Company work or FTC full stop.
HMRC forget just how much worse Covid would have been without Tech, much of it delivered by Contractors. No clapping for us though.
IR35 will be shot down in flames.
So we are in agreement, IR35 is just another in a long line of destructive, asset stripping policies from Johnson’s crooked BlueKip government.
Their alt-right flagship policy has already devastated imports, exports, farming, fishing, manufacturing and finance here in the UK. All for no explainable reason.
So why would they care about domestic freelancers when foreign lobbyists (eh 😉 can openly corrupt policy with no consequences.
I’m mulling over working from Kingston Jamaica, Nassau Bahamas, Castrries St Lucia, Bridgetown Barbados, Amsterdam, Bermuda & Spain as alternative Offices if HMRC persists with IR35.
Maybe Colorado.
IR35 is an “S” Show !!!!
Not drinking the Kool Aid !!!
You really are a Tory party donor, is that you Lord Ashcroft?