What does Budget 2021 mean for contractors?

The March 2021 Budget contains a large number of announcements that will affect contractors – including a 2023 Corporation Tax hike, many frozen tax allowances, and a variety of other measures which we have outlined below.

Corporation Tax increase

The main rate of Corporation Tax will rise to 25% from April 2023.

Importantly, a system of tapered relief will be introduced, to protect companies with lower profits.

The current 19% rate will still apply to annual profits of £50,000 or less.

Tapered relief will apply to profits between £50,000 and £250,000.

The Chancellor said that only 10% of firms would pay more Corporation Tax in 2023 as a result.

IR35 / Off-Payroll

As expected, nothing new to report in today’s Budget documents. The Off-Payroll rules will go ahead in the private sector in April 2021, as planned.

COVID-19 support schemes extended

The furlough scheme will continue until the end of September, with businesses asked to contribute 10% from July, and 20% during the final two months of the scheme.

Access to two further self-employed grants (SEISS) will continue until the end of September, with extra individuals now eligible. Significantly, there has been no extra support provided to many of the ‘excluded’, including limited company directors.

New business loans scheme

A new loan scheme for businesses – providing loans of between £25,000 and £10m – will replace the current bouncebank loan (BBL) and CBILS schemes when they come to an end later this year.

Investment ‘super deduction’

To offset the effects of the April 2023 Corporation Tax hike, and to encourage investment, firms will be able to invest their cash reserves in new investment and reduce their exposure to tax by 130% of the cost.

VAT threshold unchanged

The VAT registration threshold remains unchanged for another year – at £85,000.

Income tax, CGT and NIC rates frozen

There will be no changes to the rates of income tax or National Insurance.

The Capital Gains Tax (CGT) annual allowance remains frozen at £12,300.

Personal allowance and income tax thresholds to be frozen for 5 years

The personal allowance will increase from £12,500 to £12,570 from April 6th, 2021.

The higher rate income tax threshold will rise from £50,000 to £50,270.

Significantly, these thresholds will remain unchanged for 5 years – until 2026.

Help for home buyers

The Stamp Duty holiday home sales up to £500,000 will be extended until the end of June, with further support continuing beyond this point. The nil rate will continue for sales up to £250,000 until the end of September.

A new first time buyers’ 95% mortgage guarantee scheme will be introduced to help people with a 5% deposit purchase a home worth up to £600,000.

Business rates

The current business rates holiday will be extended until the end of June.

Inheritance Tax threshold frozen

The current £325,000 threshold will be frozen until 2026.

Pensions

No changes. The Lifetime Allowance will be frozen at f £1,073,100 until April 2026.

ISAs

The adult ISA annual limit will remain at £20,000 in 2021/22.

Economic outlook

The UK economy is expected to return to levels seen before the pandemic – by mid-2022.

The economy is expected to grow by 4% this year, and by 7.3% in 2022.

Total government borrowing is expected to top £250bn this tax year, plus over £230bn in 2021/22.

Other interesting measures

The limit for contactless payments will rise from £45 to £100.

Over £100m has been put aside to tackle COVID-19 fraudsters, thanks to a new Taxpayer Protection Taskforce.

Fuel duty will be frozen in 2021/22.

Alcohol duty will be frozen in 2021/22.

More to follow…

Download the Budget red book, and various HMT press releases here.