In the budget announced by Chancellor Rishi Sunak, the tax rates and government support scheme have been mostly the focus. Contractors were hoping that the government would postpone the implementation of the new IR35 reforms, but it didn’t happen.
The good news for contractors is that the government hasn’t raised Income Tax, National Insurance rates and VAT rates, and also to everyone’s surprise there were no changes in the Capital Gains Tax regime.
The major change in the budget was to the corporation tax rates. Those contractors who are earning a profit of more than £50,000 will now have to pay more corporation tax. Earlier it was 19% but it has been increased to 25% from April 2023, with marginal relief for profits between £50,000 to £250,000. But, don’t worry, with correct tax measures, and cash flow management, they can easily earn good returns.
Coronavirus related changes
Updates related to the schemes introduced by the government during the time of the Covid-19 pandemic are:
- The furlough scheme will not be taken back by the government at least till the end of September.
- The government will pay 80% of the wages of employees who couldn’t work
- The government will continue to support self-employed and 60,000 more people are added to the list.
- From April 2021, the government will raise the minimum wage by £8.91 an hour.
Also See: Tax Rates and Thresholds for 2020-21
The government has shown full support for businesses in tax filing. Some of the key news is mentioned below:
- The rates for VAT, National Insurance and income tax will not be changed.
- From 2022 to 2026, allowance for personal income tax will be stopped at £12,570.
- Companies with a profit of less than £500,000 will be taxed at 19%: around 1.5 million small firms fall in this category.
- Holiday extended for stamp duty till June and sales of less than or equal to £500,000 will not be levied.
- The government will not make any modifications to allowances of inheritance tax or lifetime pension allowance or capital gains tax.
- The government also mentioned that other types of allowances will not be touched, including the dividend tax allowance at £2,000, Individual Savings Account allowance of £20,000 and no alterations to tax on savings interest.
A points-based system for tax fines
Launching new points-based penalties for self-assessment and VAT in order to make the process more fair and smooth. HMRC says the framework is intended to punish the individuals who neglect to meet their commitments, instead of targeting citizens with automatic fines and penalties for committing secluded errors.
The change will not become effective until April 2022 for VAT, and April 2023 for Self Assessment.
Here's the manner by which it'll run:
- citizens will get a point for each missed settlement cutoff time (HMRC will tell tax-paying people);
- at the point when citizens arrive at a specific focuses limit, they'll get a £200 punishment;
- citizens will get a punishment charge for each future missed commitment, however, their points all out will not be raised.
Also See: Everything you should know about IR35
This year’s budget has made it very clear that the government is going to support contractors or self-employed in every possible manner. With relief in corporation tax, VAT rates and increase of employment allowance and furlough scheme being extended, contractors seem quite satisfied with the budget.
The IR35 reforms have been implemented and contractors must know all the rules. If you are also confused with “off-payroll working rules” and looking for an umbrella company, then get in touch with our experts, they will guide you!
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