Rishi Sunak has just delivered the 2021 budget. It’s mostly as we expected; there are no horrors (like the rumoured one client rule) but also no brilliant upsides either (like the cancelling of IR35!) We’ve digested the budget and below explore the key areas relevant to consultants and contractors.
Corporation tax increase to 25%
Corporation tax will be rising in 2023, but it will be tapered. Those with profits of less than £50k will remain at 19%, while for profits between £50k to £250k it will be tapered. This is good news for contractors, or at least not the worst news, as they’re mostly shielded from the 25% rate. We’ll need to see if dividend tax rates change for the full picture.
Investment to stimulate the economy
The good news for contractors is more likely to be at a macro-economic level. It’s clear the government wants to stimulate the economy – infrastructure banks, free ports, super-deductions. They want companies to borrow and invest, and this should hopefully translate into demand for contractors who provide the flexible skill to deliver strategic projects.
- A new UK Infrastructure Bank is to be set up in Leeds with the aim of funding £40bn worth of public and private projects. This includes £15bn in green bonds to help finance the transition to net zero by 2050.
- The government announced eight new ‘free ports’ throughout England. These are economic zones with different rules to make it easier to do business.
- A new super-deduction tax incentive for companies investing in qualifying plant and machinery will mean for every pound invested companies will see taxes cut by up to 25p.
Help to Grow – Management Training
There’s a couple of bits of good news for small businesses – such as Help to Grow. It could be a good time to pivot/build your boutique consultancy firm. There is plenty of scope for this in the market and we are seeing a number of people bring skills together to compete for bigger contracts and manage IR35 risks.
Help to Grow: Management training/Executive development programme:
- Open to UK businesses from any sector that have been operating for more than 1 year, with between 5 to 249 employees are eligible
- The participant should be a decision maker or member of the senior management team within the business
One notable absence is the lack of help for company directors impacted by covid. They still remain out in the cold.
Though not mentioned in the Budget, an update to IR35 legislation was released at the same time.
IR35 legislation update
One big piece of news is the introduction of a targeted Anti-Avoidance Rule (TAAR) – which means HMRC can track down bogus schemes that are designed to get contractors operating falsely outside IR35.
This is good news for everyone working compliantly. But perhaps the most striking amendment is that to section 61V (and Regulation 22) related to providing fraudulent information. It will now 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 the fraudulent information.
This could be very hard hitting. Today, if anyone in the supply chain provides fraudulent information, the end client is liable. It means they have to audit, trust agents and all the intermediaries etc. Now, if someone provides fraudulent information, it rests with them, not the end client.
It might reduce the perceived risk of end clients dealing with contractors outside IR35 and that could be a very significant turning point for hard working self-employed professionals.
The full Budget publication and supporting documents are available here.