The Chancellor of the Exchequer announced that the government will publish the Spring Budget on Wednesday 3 March 2021, which will set out the next phase of the plan to tackle the coronavirus and protect jobs. With no specific reference to tax policy, this has led to speculation about the kind of Budget Sunak will deliver.
With the pandemic far from resolved and the country in a fragile state, there are many who believe that it’s not the right time to introduce a raft of new tax measures. Alongside last November’s Spending Review, the Office for Budget Responsibility forecast that the economy would shrink by 11.3% in 2020, the worst figure for more than 300 years, and that unemployment will peak at 7.5% this year, with 2.6 million people out of work.
Yet however dismal the figures, they indicate an urgent need for a plan of recovery if the long-term impact of the virus is to be managed. With coronavirus borrowing expected to peak this year at £400bn, this presents the Chancellor with a stark choice when it comes to balancing the books – cut spending, raise taxes, or allow the government to keep on borrowing.
Economists agree that borrowing at the current rate simply can’t be sustained. Meanwhile, the Spending Review pledged £6.8bn more in NHS funding and a £4.6bn package to get the unemployed back to work. It doesn’t require extensive analysis to conclude that an uplift in taxes looks increasingly likely in order to raise revenue. However, with businesses closed and workers on furlough until march, the government must be selective in the tax policy it chooses to implement.
It’s likely that tax policy already scheduled for this year will go ahead. For contractors, this means IR35 reform in April. While the contracting sector has endured a gruelling year, with little or no financial support, the Chancellor has always been resolute in his belief that taxation must be made ‘uniform’ for all workers. The estimate within the spending Review’s that delaying off-payroll reform by one year has cost the government £740m is widely believed to be linked to the lack of coronavirus support for contractors.
Many contractors have already closed their limited companies in response to the impending IR35 changes and the number of companies adopting ‘umbrella only’ payment models. Data from The Gazette showed that 3,126 businesses had voluntarily appointed liquidators in the third quarter of 2020 – up by more than half (52%) in the same period in 2019.
Limited company closures have also been fuelled by speculation that Capital Gains Tax (CGT) will be increased. An Office of Tax Simplification review commissioned by Sunak recommended that the government should consider aligning the CGT rate more closely with income tax rates. This means that CGT could be charged at a maximum rate of around 40%.
The review also suggested the government think about taxing earnings retained in companies by owner-managers as income and scrapping the Business Asset Disposal relief. Formerly known as Entrepreneur’s Relief, this tax relief fixes CGT at 10 percent when a business owner is disposing of or selling their company. The recommendations on CGT could raise around £14bn for the Treasury.
If you’re starting a contract or continuing an existing one past April 6th, then both contractors and their agencies need to act now to ensure compliancy with changes to the IR35 legislation. Amaze’s Umbrella service has undergone rigorous assessment to attain FCSA accreditation, giving you a fully compliant IR35 solution. Our service also offers benefits of employment that permanent staff receive as well as Perkbox* benefits, insurance cover and a seamless onboarding experience from our first-class customer service team. To speak to a member of the Amaze team see here or for information on the sectors to watch in 2021 see here.
*Perkbox services are available to contractors paying the qualifying service fee. Please contact us for information.