This year’s budget was delivered in-person to a small number of socially distanced MPs and watched on television by millions around the country. The Chancellor, Rishi Sunak, outlined the UK Government’s plan to help support people and businesses weathering the storm of COVID-19.
The UK has seen its economy fall by nearly 10%, which is the biggest drop since the great frost in 1709 and has the deepest recession of all the G7 nations. Here, we highlight the main talking points from the budget and the impact it may have on recruiters and their contingent workforce.
Some businesses had their fingers crossed hoping for a further delay to IR35 reforms in the private sector. Unfortunately, this was not the case and the controversial reforms didn’t get any mention in the Spring Budget.
However, HMRC did release a policy paper confirming technical changes to the legislation minutes after the budget announcement had finished. This paper confirms the correction of an error in the 2020 Finance Act that unintentionally brought umbrella companies in scope of the reforms. This original expansion in the definition of what qualifies as an intermediary for the purposes of the IR35 reforms was an anti-avoidance measure; an attempt by the government to prevent avoidance of the off-payroll working rules. However, the widening of this definition would have meant payments to umbrella companies should be treated in the same way as payments to a Personal Service Company, meaning the party that pays the umbrella company would take on fee payer responsibilities.
The correction means that intermediaries will only be in scope where:
- (i) PAYE and NICs are not applied in full and;
- (ii) the worker has any interest in the intermediary through which they are supplied.
Therefore, payments to compliant umbrella companies will be out of scope of the reforms. The amendments also mean that intermediaries will be obliged to confirm to other parties in the supply chain whether the above conditions are met.
The policy paper introduces a Targeted Anti-Avoidance Rule (TAAR) which will target any arrangements where the main purpose (or one of the main purposes) of the arrangement is to gain a tax advantage. Specifically, it is there to tackle organisations that attempt to circumvent the conditions of an intermediary, to take the engagement out of the scope of the off-payroll working rules.
The government has also extended the consequences of providing fraudulent information to include information provided by any UK-based party in the labour supply chain. Where fraudulent information is provided, the subsequent liability will be moved to the party that provided fraudulent information.
Whilst the government previously confirmed that the inclusion of umbrella companies - within the definition of an intermediary - was unintentional, it is reassuring to see that this has now been corrected. We will get full details when the Finance Bill is published on 12th March.
The publication of this policy paper also reaffirms the government’s commitment to the IR35 reforms. To stay up to date with all the latest information on IR35, head over to our dedicated IR35 resource page for more information.
Extension of the furlough scheme
The Chancellor confirmed that the Coronavirus Job Retention Scheme (CJRS) will be extended to 30th September 2021. During the budget, he announced further details, confirming that the scheme will continue in its current form until 30th June 2021. In July, employers will be required to contribute 10%, increasing to 20% in August and September.
Whilst the extension to the scheme is welcomed, the CJRS already presented challenges for recruitment agencies and umbrella companies seeking to support a contingent workforce. Introducing additional contributions from employers makes it harder for those organisations to support their contingent workforce.
Support has been available for those operating as sole traders and partnerships through the Self Employment Income Support Scheme (SEISS) and it is good to see that this has been extended. The Chancellor announced a 4th and 5th grant that will run to the end of September, in line with the CJRS.
This scheme has been expanded to an additional 600,000 newly self-employed who completed last year's tax returns by midnight 2nd March 2021. This is welcome news for those who have been without support throughout the pandemic, however, there is still no real support for directors of small limited companies, the Chancellor failed to mention this group once in his speech.
Recovery Loan Scheme
As the other coronavirus support loan schemes close, the government will launch the new Recovery Loan Scheme on 6th April 2021. This scheme will offer term loans and overdrafts of between £25,001 and £10 million per business alongside invoice finance and asset finance of between £1,000 and £10 million per business. They will be 80% government-guaranteed and open to businesses of all sizes that have been impacted by the pandemic.
The rumour mill was rife with speculation that tax hikes were imminent in this year’s Spring Budget, however, the expected changes to Capital Gains Tax and National Insurance Contributions were not announced.
The most notable announcement was an increase in the main rate of Corporation Tax which is set to rise from 19% to 25% in April 2023 for businesses with profits of more than £250,000. For those businesses with profits between £50,000 and £250,00, a tapered rate will be introduced, and businesses with profits of £50,000 or less, will continue to be taxed at 19%.
Whilst this may offer some relief to smaller businesses, this increase in Corporation Tax will have an impact on those who fall into the larger bracket, with a 6% increase on their Corporation Tax contributions.
Personal tax thresholds
The government will freeze the income tax Personal Allowance and higher rate threshold and National Insurance Contributions Upper Earnings Limit and Upper Profits Limit at their 2021/2022 levels up to and including the tax year 2025/2026.
This means the Personal Allowance will remain at £12,570, the higher rate threshold will remain at £50,270 and the additional rate threshold fixed at £150,000. The NIC Upper Earnings Limit and Upper Profits Limit will remain at £50,270 for these years.
Investments made by companies will be allowed a 130% “super-deduction” on their tax liabilities. This means that, in theory, firms can cut their taxes by up to 25p for every pound they invest in qualifying new plant and machinery assets between 1 April 2021 until 31 March 2023.
The sectors expected to benefit most from super-deduction are construction, manufacturing, logistics and transport.
Stamp Duty and 5% Mortgages
The Stamp Duty holiday is set to continue till the end of June 2021, with a phasing out of the tax break until the end of September 2021, where it will return to its original form. This means all house purchases in England and Northern Ireland will have no tax liability on sales that are less than £500,000, until the end of June. This will then be decreased to £250,000 until the end of September, and thereafter will return to the normal rate of £125,000.
In addition to the Stamp Duty holiday, the Chancellor confirmed that the 5% mortgages initiative, announced by the Prime Minister in November 2020, is set to come into effect next month. This will mean that the Government will offer guarantees to lenders to secure mortgages for those that have a 5% deposit.
This is expected to be good news for estate agents, as the two incentives in tandem are expected to increase house prices over the next couple of months.
Apprenticeship Incentive Extended
Initially launched back in August 2020, employers have been able to access up to £2,000 to take on new apprentices. This financial incentive was due to end this month however, in the Budget, Rishi Sunak announced that the scheme will continue for an additional six months to September.
Not only that, but the incentive has increased. From the 1st April 2021, for any new apprentice hired, the employer will receive £3,000 regardless of the apprentice’s age (differing from the existing incentive).
Help to Grow Scheme
In his budget, the Chancellor announced a new scheme to help small and medium-sized businesses to boost their productivity. The scheme will provide those businesses access to free management and digital advice, as well as discounted software.
Eligible businesses can be from any sector, but have to be in the UK and have been operating for more than 1 year and have between 5-249 employees. To find out more, check out the Help to Grow website.