Millions tuned in from around the country to watch the always hotly anticipated annual budget. Chancellor Rishi Sunak outlined the UK Government’s economic plan to support people and businesses across the nation, this year in particular holds greater bearing than normal given the need for people and businesses across the country needing to survive the economic downturn caused by Covid-19.
The UK has experienced the deepest recession of all the G7 nations, with the economy falling by almost 10%. In this post, we’re going to look at the key talking points from the budget announcement and how it could affect contact recruitment agencies and their contractor employees.
Many across the sector had been hoping for further delay on IR35 reforms in the private sector. However, this is not the case and the reforms didn’t get any mention in the Spring Budget.
HMRC did release a policy paper detailing the technical changes to legislation minutes moments after the budget announcement was complete. The paper confirmed the correction of an error from the 2020 Finance Act that accidentally involved umbrella companies in the scope of the reforms. What qualifies as an intermediary in relation to the intention of IR35 reforms was an anti-avoidance measure put in place by the government in an attempt to stop off-payroll working rules from being avoided.
The main issue with this was the widening of the parameters of the definition, it would have meant payments to umbrella companies would be treated the same as a Personal Service Company. In essence, the contract recruitment agency, when paying the umbrella company, would take on fee payer responsibilities.
With the new amendments, it means intermediaries will only be in scope when:
- PAYE and National Insurance Contributions are not fully applied AND;
- The worker has any involvement with the intermediary through which they are working or supplied
This means compliant umbrella companies will be outside the scope of reforms. Also resultant of the amendments intermediaries will have to confirm to the other parties in the chain whether the above conditions have been met.
The policy paper further outlines a new Targeted Anti-Avoidance Rule (TAAR), which has been introduced to target arrangements with the intention of the arrangement to gain a tax advantage. In large, it is designed to focus on dealing with organisations who are trying to avoid the conditions of an intermediary, to take the engagement out of the parameters of off-payroll working rules.
Other changes to the rules include the government extending the consequences of giving fraudulent information to include information provided by any UK-based participant in the labour supply chain. Anyone who provides fraudulent information will be liable. It is good to see this has been recognised and corrected by the government and further details can be expected when the Finance Bill is published.
Furlough Scheme Extension
There was further good news, with the Chancellor confirming the Coronavirus Job Retention Scheme (CJRS) would run until 30th September 2021. In addition, he confirmed the scheme will continue in the same format as it has been running until 30th June 2021. From July contracting companies will be expected to contribute 10%, then subsequently increased to 20% in August and September.
Like many sectors, although this is in part good news there are still major concerns relating to the CJRS for contract recruitment agencies and umbrella companies who are looking to support their contingent workforce during this period. Asking contracting companies to make additional contributions from employers makes it challenging for these companies to support their workforce.
Self-Employment Income Support Scheme (SEISS) Extension Confirmed
The good news keeps on coming, this time for those who operate as sole traders and partnerships through the SEISS who will also see an extension to the support scheme. This means there will be fourth and fifth grant payments running until the end of September 2021, running alongside the CJRS.
Added to which the scheme will be opened up to an additional 600,000 newly self-employed who managed to complete their tax returns by midnight on 2nd March 2021. Unfortunately as of yet, there has still been no mention of support for small limited companies.
New Recovery Loan Scheme
As most coronavirus support loan schemes have closed, the government has announced a new Recovery Loan Scheme which came into effect from 6th April 2021. The loans will offer loans and overdrafts between £25,001 and £10 million per business plus invoice finance and asset finance between £1,000 and £10 million per business. The loans are 80% government-guaranteed and open to businesses of any size impacted by the pandemic.
With all the additional financial support being offered to support businesses across all sectors due to the pandemic, it was widely expected that increases in tax were inevitable in the budget. The expected changes to Capital Gains Tax and National Insurance Contributions were not announced.
There were increases, of which the most notable was Corporation Tax which will rise from 19% to 25% in April 2023 for businesses with profits in excess of £250,000. For any business with profits between £50,000 and £250,000, a reduced rate will be introduced and businesses with profits under £50,000 will remain at 19% taxation.
This is positive news for smaller businesses, but the increase in Corporation Tax will impact those businesses in the larger bracket, with an overall 6% increase on their Corporation Tax contributions.
Personal Allowance Thresholds
The income tax personal allowance will remain at £12,750 with the higher rate threshold also remaining at £50,270 and the additional rate threshold fixed at £150,000. This means they will stay at their 2021/2022 level up until and including the tax year 2025/2026. With NIC Upper Earnings Limit and Upper-Profit Limits frozen at £50,270 for the same period.
Super Deductions on Tax Liabilities
If a business makes an investment they will be able to claim a 130% “super-deduction” on tax liabilities. This works out to cut businesses taxes by up to 25p for every £1 they invest in qualifying new plant and machinery assets between the dates of 1st April 2021 up until March 2023.
The industries looking to benefit the most from this super-deduction are construction industry services, manufacturing, logistics and transport.
Stamp Duty and New 5% Mortgages Initiative
The stamp duty holiday continued until the end of June 2021, with an intended phasing out of the tax break until the end of September 2021 and from there it will return back to its original format. It meant house purchases in England and Northern Ireland had no tax liability on sales less than £500,000. Then from the end of June until the end of September, it will be decreased to £250,000, with it returning to the normal rate of £125,000 post-September.
The Chancellor also confirmed the introduction of the new 5% mortgages initiative, which came into effect in April 2021. This will mean the Government can guarantee lenders secure mortgages for those with a 5% deposit.
Apprenticeship Incentive Extension
This scheme was launched back in August 2020, offering employers the chance to access up to £2,000 to take on apprentices. This thankfully has been extended for an additional six months until September 2021. On top of this, the incentive has increased in value and the employer can receive £3,000 regardless of the apprentice’s age, an increase of £1,000.