Although Rishi Sunak’s budget today didn’t repeal the off-payroll legislation change due in April as we might have hoped, it’s not all bad news for freelancers and contractors.
With the economy expected to recover to pre-Covid level by mid-2022, the Chancellor set out his plans for supporting the recovery and subsequently recovering some of the cost associated with the pandemic.
For freelancers and contractors the good news is that Income Tax, National Insurance, Annual Exemption for Capital Gains Tax, the VAT registration threshold, Inheritance Tax limit and VAT rates are all not being raised. However, with income tax thresholds and personal allowance frozen from 2022 until 2026, income tax payable will rise as salaries rise.
Freelancers and contractors will also breathe a sigh of relief that no changes were made to Business Asset Disposal Relief (previously Entrepreneurs Relief) meaning those wishing to close via a Members Voluntary Liquidation (MVL) will still be paying tax at a rate of 10% on the assets and cash on closure.
Those with profits over £50,000 will be caught by a Corporation Tax increase due in 2023, from 19% to 25%. However, many who currently post higher profits can mitigate their tax liability with good financial planning. Please speak to us about how to go about this so we can help get your business in shape before 2023. Pension contributions are going to be a massive tax planning opportunity in the future due to this.
• Furlough to be extended until the end of September
• Government to continue paying 80% of employees’ wages for hours they cannot work
• Employers to be asked to contribute 10% in July and 20% in August and September
• Support for the self-employed also to be extended until September
• 600,000 more self-employed people will be eligible for help as access to grants is widened
• £20 uplift in Universal Credit worth £1,000 a year to be extended for another six months
• Working Tax Credit claimants will get £500 one-off payment
• Minimum wage to increase to £8.91 an hour from April 2021
• No changes to rates of Income Tax, National Insurance or VAT
• Personal income tax allowance to be frozen at £12,570 from 2022 to 2026.
• Higher rate income tax threshold to be frozen at £50,270 from 2022 to 2026
• Corporation tax on company profits to rise from 19% to 25% in April 2023 (tapered from £50,001 to £250,000 profit)
• Rate to be kept at 19% for about 1.5 million smaller companies with profits of less than £50,000
• Stamp duty holiday extended to June, with no levy on sales of under £500,000
• No changes to inheritance tax or lifetime pension allowance or capital gains tax allowances
Business, digital and science
• Tax breaks for firms to “unlock” £20bn worth of business investment
• Firms will be able “deduct” investment costs from tax bills, reducing costs by 130%
• Incentive grants for apprenticeships to rise to £3,000 and £126m for traineeships
• VAT rate for hospitality firms to be maintained at 5% until September
• Interim 12.5% rate to apply for the following six months
• Business rates holiday for firms in England to continue until June with 75% discount after that
• £5bn in re-opening grants for non-essential businesses worth up to £6,000 per premises
• New visa scheme to help start-ups and rapidly growing tech firms source talent from overseas
• Contactless payment limit will rise to £100 later this year
Universal Credit is a single payment that is made up of different amounts depending on an individual’s circumstances. There is no entitlement if an individual’s capital is worth more than £16,000. Shortly after the 2020 Budget the Chancellor announced an increase in the Universal Credit standard allowance by £20 per week for one year.
The government is extending the temporary £20 per week increase for a further six months.
The government is making a one-off payment of £500 to eligible Working Tax Credit claimants to provide extra support over the next six months.
The government will introduce a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000.
Under the scheme, all buyers will have the opportunity to fix their initial mortgage interest rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31 December 2022, is designed to increase the availability of mortgages on new or existing properties for those with small deposits.
The government will offer a green retail savings product through NS&I in the summer of 2021. This product will be closely linked to the UK’s sovereign green bond framework and will give all UK savers the opportunity to take part in the collective effort to tackle climate change. The green gilt framework, to be published in June, will detail the types of expenditure that will be financed to meet the government’s green objectives.
The government will continue to support social enterprises that are seeking growth investment by extending the operation of Social Investment Tax Relief to April 2023. This will continue the availability of income tax relief and capital gains tax hold-over relief for investors in qualifying social enterprises.
The lifetime limit sets the maximum figure for tax-relieved savings that an individual can build up over their lifetime.
Legislation will be introduced to remove the annual link to the CPI increase for the next five years. This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021/22 to 2025/26.
The Chancellor announced the following income tax rates and allowances.
|Band £||Rate %||Band £||Rate %|
|0 – 37,700||20||0 – 37,500||20|
|37,701 – 150,000||40||37,501 – 150,000||40|
|Over 150,000||45||Over 150,000||45|
Income tax rates in Scotland and Wales on income other than savings and dividend income have been devolved.
|Savings allowance basic rate||£1,000||£1,000|
|Savings allowance higher rate||£500||£500|
A starting rate for savings band of £5,000 at 0% may be available unless taxable non-savings income exceeds the starting rate band.
|Dividend ordinary rate||7.5%||7.5%|
|Dividend upper rate||32.5%||32.5%|
|Dividend additional rate||38.1%||38.1%|
|Personal allowance income limit||£100,000||£100,000|
Transferable between certain spouses where neither pay tax above the basic rate
|Married couple’s allowance (relief given at 10%)
Either partner born before 6 April 1935
• minimum amount
• income limit
|Blind person’s allowance||£2,520||£2,500|
Savings and dividend income are taxed using UK rates and bands.
|Band £||Rate %||Band £||Rate %|
|0 – 2,097||19||0 – 2,085||19|
|2,098 – 12,726||20||2,086 – 12,658||20|
|12,727 – 31,092||21||12,659 – 30,930||21|
|31,093 – 150,000||41||30,931 – 150,000||41|
|Over £150,000||46||Over 150,000||46|
Although income tax for Wales has been devolved, Welsh resident taxpayers continue to pay the same overall rates as taxpayers in England and Northern Ireland.
The current JRS allows an employer to place an employee on furlough and apply for a grant to cover wage costs for the time an employee is on furlough. The employer:
In December 2020, the Chancellor extended the scheme until the end of April 2021.
In Budget 2021 the Chancellor has further extended the scheme to 30 September 2021.
The level of grant available to employers under the scheme will stay the same until 30 June 2021.
From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.
The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:
Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions.
|The Chancellor has also extended eligibility for the scheme. For periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021, as long as a PAYE Real Time Information (RTI) submission was made between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee.|
The government will provide an additional £126 million in England for high quality work placements and training for 16-24 year olds in the 2021/22 academic year. Employers who provide trainees with work experience will continue to be funded at a rate of £1,000 per trainee.
The government will extend and increase the payments made to employers in England who hire new apprentices. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.
This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies.
The government will introduce a £7 million fund from July 2021 to help employers in England set up and expand portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high quality long-term training that an apprenticeship provides.
New tax rules are soon to come into force for individuals who provide their personal services via an ‘intermediary’ to a medium or large business. The new rules apply to payments made for services provided on or after 6 April 2021.
The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary (typically a personal service company) to another person or entity (the client). The client will be required to make a determination of a worker’s status and communicate that determination. In addition, the fee-payer (usually the organisation paying the worker’s personal service company) will need to make deductions for income tax and NICs and pay any employer NICs.
In the Budget the government announced minor technical changes to improve the operation of the rules, in response to feedback from stakeholders, which will be legislated for in Finance Bill 2021. The government will make changes to the rules regarding provision of information by parties in the labour supply chain.
|These changes will make it easier for parties in a contractual chain to share information relating to the off-payroll working rules by allowing an intermediary, as well as a worker, to confirm if the rules need to be considered by the client organisation.|
From 6 April 2021, a nil rate of tax applies to zero-emission vans within the van benefit charge. In 2020/21 such vans have a van benefit charge at 80% of the standard flat rate of £3,490.
The government will legislate in Finance Bill 2021 to introduce a time-limited easement to the employer-provided cycle exemption to disapply the condition which states that employer-provided cycles must be used mainly for journeys to, from, or during work. The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020.
The change will have effect on and after Royal Assent of Finance Bill 2021 and be in place until 5 April 2022, after which the normal rules of the exemption will apply.
The government will legislate in Finance Bill 2021 to introduce a retrospective income tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test for the tax year 2020/21. Legislation will extend this exemption for the tax year 2021/22.
The change will have effect on and after Royal Assent of Finance Bill 2021. The corresponding NICs disregard is already in force and this will also be extended for the tax year 2021/22.
The government will, by secondary legislation, extend the temporary income tax exemption and Class 1 NICs disregard for employer reimbursed expenses that cover the cost of relevant home office equipment. The extended exemption will have effect until 5 April 2022.
Earnings per week
|%||Earnings per week||%|
|Up to £184||0||Up to £170||0|
|£184.01 – £967||12||Over £170||13.8|
Entitlement to contribution-based benefits for employees retained for earnings between £120 and £184 per week.
The employer rate is 0% for employees under 21 and apprentices under 25 on earnings up to £967 per week.
|Class 1A (employers)||On employee taxable benefits||13.8%|
|Class 1B (employers)||On PAYE Settlement Agreements||13.8%|
|Class 2 (self-employed)||Flat rate per week||£3.05|
|Small profits threshold||£6,515 per annum|
|Class 3 (voluntary)||Flat rate per week||£15.40|
|Class 4 (self-employed)||On profits between £9,568 – £50,270||9%|
|Excess over £50,270||2%|
Increases in the National Minimum Wage and National Living Wage rates occur in April each year.
21 – 22
18 – 20
16 and 17
|From 1 April 2021||£8.91||£8.36||£6.56||£4.62||£4.30|
Apprentice rates apply to those under 19, or 19 or over and in the first year of their apprenticeship.
Changes to the HMRC business mileage rates are announced from time to time. The fuel only advisory rates below relate to company cars only and apply from 1 March 2021.
Car – fuel only advisory rates
|1400cc or less||10p||9p||7p|
|1401cc to 1600cc||12p||9p||8p|
|1601cc to 2000cc||12p||11p||8p|
For those using their own vehicle the following mileage allowance payments apply.
Cars registered pre 6.4.20
Cars registered after 5.4.20
|% of list price taxed||% of list price taxed|
|130 or more||2||1|
|For every extra 5||+1||+1|
|160 and above||37||n/a|
|165 and above||n/a||37|
For fully diesel cars generally add a 4% supplement (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%. For emissions over 75g/km if the CO2 figure does not end in a 5 or a 0 round down to the nearest 5 or 0.
In 2020, the government introduced a number of government-guaranteed coronavirus loan schemes. In December 2020 the Chancellor extended, until the end of March 2021, access to the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme.
Budget 2021 announced a new loan scheme to be introduced to replace those coming to an end.
From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.
In addition Restart Grants will be provided in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses. This will provide the cash certainty needed to plan ahead and safely relaunch trading over the coming months.
Budget 2021 has confirmed details of a fourth grant. This will be 80% of three months’ average trading profits to be claimed from late April 2021. Payment will be in a single instalment capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 self assessment tax return prior to 3 March 2021. This means that the newly self-employed from April 2019 now qualify subject to satisfying the other conditions.
A fifth and final grant was announced and can be claimed from late July 2021 to cover the period May to September 2021. This grant will be determined by a turnover test. Where the self-employed business turnover has fallen by 30% the grant will be worth 80% of three months’ average trading profits capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850.
Business rates have been devolved to Scotland, Northern Ireland and Wales. All four nations have introduced 100% business rates relief mainly aimed at retail, leisure and hospitality businesses. Such businesses have not had to pay business rates from 1 April 2020 to 31 March 2021.
In a Scottish Budget update statement on 16 February, the Scottish Government proposed an extension to the relief for the retail, hospitality, leisure and aviation sectors until 31 March 2022.
The Chancellor has now announced a continuation of 100% business rates relief for eligible retail, hospitality and leisure properties in England to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties.
Following the Chancellor’s announcement, the Welsh Finance Minister has extended the rates holiday for the retail, leisure and hospitality sectors in Wales for a further 12 months.
In July 2020, the government introduced a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions. In September 2020 the Chancellor extended the reduced rate to 31 March 2021. The government has now announced an extension of the reduced rate until 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.
The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
A temporary extension of the period over which businesses may carry trading losses back for relief against profits of earlier years to get a repayment of tax paid will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022 and for tax years 2020/21 and 2021/22 for unincorporated businesses.
Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.
For companies, after carry back to the preceding year, a maximum of £2 million of unused losses will be available for carry back against profits of the same trade to the earlier two years. This £2 million limit applies separately to the unused losses of each 12 month period within the duration of the extension.
For individuals a separate £2 million cap will apply to the extended carry back of losses made in each of the tax years 2020/21 and 2021/22.
The £2 million limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances.
Under this measure a company will be allowed to claim:
This relief is not available for unincorporated businesses.
Budget 2020 announced the extension of 100% first year allowances for zero-emission cars, zero-emission goods vehicles and equipment for gas refuelling stations by four years from April 2021.
CO2 emission thresholds will also be amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down. The thresholds will be reduced from 50g/km to 0g/km for the purpose of the first year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of writing down allowances (WDAs) for business cars.
In 2020 the government consulted on proposals to create up to ten Freeports across the UK. The government is now proposing a range of measures covering customs, tax reliefs, planning, regeneration funding and innovation to create Freeports as national hubs for global trade and investment across the UK.
A UK Freeport will be a geographical area with a diameter up to 45km which is closely linked to a sea port, airport or rail port. East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England.
The government is working with devolved administrations to establish Freeports in each of the nations.
Within the Freeport there will be a primary customs site and perhaps custom subzones. A customs site or subzone provides customs and tariff benefits such as:
Freeports may also have one or more tax sites within which tax reliefs will apply. The aim is for a single site and up to three tax sites may be allowed but the total area of the site(s) must not exceed 600 hectares. The tax site will likely be located on primarily underdeveloped land to generate new, additional productive activity in Freeport locations.
The intention is to offer:
Very broadly, the reliefs will apply for expenditure from various dates in 2021 to 30 September 2026.
In addition, a 0% rate of employer NICs on the salaries of any eligible employee working in the Freeport tax site is proposed. The relief is intended to be available for up to 9 years from April 2022.
A cap on the amount of R&D tax credit which can be paid to a loss-making small or medium-sized enterprise (SME) will be introduced for accounting periods which commence on or after 1 April 2021.
Prior to the introduction of the cap, loss-making SMEs incurring qualifying expenditure on R&D activities are allowed to make a claim to surrender the unrelieved loss for a payable tax credit of up to 14.5%. For accounting periods commencing on or after 1 April 2021, payable tax credits are restricted to £20,000 plus three times the company’s relevant expenditure on workers.
Relevant expenditure on workers is the company’s PAYE and NICs for the period and importantly this is the company’s whole PAYE and NIC liability. In addition, if the company is supplied with workers by a connected company the relevant workers’ expenditure is extended to include a proportion of those worker costs.
Some companies which create or manage intellectual property and spend less than 15% with connected persons on R&D qualifying expenditure will be exempt from this cap.
No changes to the current rates of CGT have been announced at Budget 2021. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for Private Residence Relief.
There are two specific types of disposal which potentially qualify for a 10% rate up to a lifetime limit for each individual:
The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.
The CGT annual exemption will be maintained at the current 2020/21 level of £12,300 for 2021/22 and up to and including 2025/26.
The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) which has been increased in stages and is now £175,000 for deaths in 2020/21 will also be frozen at the current level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.
Gift Hold-Over Relief operates by deferring the chargeable gain on the disposal when a person gives away business assets. The gain then comes into charge when the recipient disposes of the gifted asset. The recipient is treated as though they acquired the asset for the same cost as the person who gave them the asset.
A change to the relief ensures that Gift Hold-Over Relief is not available where a non-UK resident person disposes of an asset to a foreign-controlled company, controlled either by themselves or another non-UK resident with whom they are connected. This measure will affect disposals made on or after 6 April 2021.
Land and buildings transaction taxes are devolved to Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax). Stamp Duty Land Tax (SDLT) applies to transactions in England and Northern Ireland. All these taxes have had a temporary increase in the nil rate threshold for residential properties. The thresholds were set to return to the previous thresholds from 1 April 2021.
The government will extend the temporary increase to the SDLT nil rate band for residential property in England and Northern Ireland to 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will be £250,000. The nil rate band will return to the standard amount of £125,000 from 1 October 2021.
Following the Chancellor’s announcement, the Welsh Finance Minister has confirmed that the Land Transaction Tax temporary reduction period will be extended by a further three months so that it will end on 30 June 2021.
In December 2020, the Welsh Government changed the rates charged on higher rates residential property transactions and non-residential transactions including the rent element of non-residential and mixed leases. The changes to the higher residential rates have the effect of increasing the tax rates applied to the bands by 1%. For non-residential transactions, changes have been made to the bands so as to increase the nil rate thresholds. These changes came into effect on 22 December 2020.
New SDLT rates are proposed for purchasers of residential property in England and Northern Ireland who are not resident in the UK. The new rates will be 2% higher than those that apply to purchases made by UK residents, and will apply to purchases of both freehold and leasehold property as well as increasing SDLT payable on rents on the grant of a new lease. The surcharge will apply to land transactions with an effective date of 1 April 2021 or later. Transitional rules may apply to some contracts exchanged before 11 March 2020 but completed or are substantially performed on or after 1 April 2021, or some contracts substantially performed on or before 31 March 2021 but not completed until 1 April 2021 or later.
Following a public consultation by the Financial Conduct Authority, the government has approved an increase to the legal contactless payment limits previously set by the European Commission. This will allow banks to support single contactless payments up to £100, and cumulative contactless payments up to £300, without the need for customers to input their chip and pin. The government hopes the banking industry will implement the new limits later this year.
The duty rates are frozen for beer, spirits, wine and made-wine, still and sparkling cider and perry.
The duty rate on all tobacco products has also been frozen.
Fuel duty will be frozen for the 2021/22 tax year.
What They Said…
‘We need a real commitment to give every business, large or small, the opportunity to grow, innovate and succeed. This future economy won’t be created in any one Budget, but today we lay the foundations.’
Rishi Sunak, Chancellor of the Exchequer
‘We needed a Budget to fix our economy… to build a more secure and prosperous economy for the future. Instead we got a Budget that papered over the cracks rather than rebuilding the foundations.’
Keir Starmer, Leader of the Labour Party
‘The Chancellor has gone above and beyond to protect UK businesses and people’s livelihoods through the crisis and get firms spending.’
Tony Danker, Director General of the Confederation of British Industry
‘Extensions to furlough, business rates relief and VAT reductions give firms a fighting chance not only to restart but also to rebuild.’
Dr Adam Marshall, Director General of the British Chambers of Commerce
‘The continuation of business rates and VAT discounts is critical, and it’s important that those in supply chains benefit from them, not just those that neatly fit the definitions of frontline retail, leisure and hospitality.’
Mike Cherry, National Chairman of the Federation of Small Businesses
Thus budget was prepared immediately after the Chancellor’s Budget Statement based on official press releases and supporting documentation. The Budget proposals are subject to amendment before the Finance Act receives Royal Assent. This Report is for guidance only, and professional advice should be obtained before acting on any information contained herein. No responsibility can be accepted by the publishers or the distributors for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.