What Does the 2021 Budget Mean for Contractors?

2021 budget: What does it mean for contractors?

In this guide, Umbrella Supermarket will outline the key points every contractor needs to know about what the 2021 budget means for them.

The government’s Job Retention Scheme will be extended

The government’s Job Retention Scheme was introduced in March 2020 when the pandemic and subsequent lockdowns hit and has since been extended several times.

The scheme was introduced to help employees that could no longer maintain their workforce because they have been badly impacted by coronavirus. Such businesses had the option to put their employees on furlough. This is a grant that covers 80% of the employees’ monthly wage up to a maximum of £2,500 per month.

An employee can be furloughed for any amount of time and with any working pattern as long as they pay PAYE tax. A worker is eligible for furlough whether they work full-time, part-time, on a zero-hours contract or through an agency.

This means umbrella company contractors have been eligible to receive furlough pay. This is because the umbrella company employs you and deducts your tax contributions through the PAYE system.

For more information, check out our handy guide on the Job Retention Scheme for contractors.

Although the scheme was initially set to end at the end of April, the good news for umbrella contractors who’s work continues to be badly impacted by COVID-19 is that Sunak has announced that the furlough scheme has been extended until the end of September.

This means that the government will continue to pay 80% of employees’ wages for the hours they can’t work.

Although this is great news for umbrella company contractors, what about self-employed contractors who are not entitled to furlough pay?

Support for the self-employed will be extended

The Chancellor has also announced that support for the self-employed will be extended until the end of September 2021.

This is good news for the thousands of limited company contractors who operate on a self-employed basis.

Again, the Self-Employment Income Support Scheme was introduced to help those who work for themselves and have been badly impacted by the pandemic.

Self-employed workers can apply for the grant online through the HMRC website and must make an honest assessment about whether their business has experienced a significant reduction in profits due to the pandemic.

You will receive 80% of your average monthly trading profits which is paid out in a single instalment covering 3 months’ worth of profits with a limit of £7,500.

What’s more, it was announced that the scheme will be extended to an additional 600,000 people who were not eligible for the first three grants.

This is because the government is now letting workers submit their 2018-2019 and 2019-2020 self-assessment tax returns as evidence of their earnings. They previously only accepted 2018-2019 tax returns which meant thousands of newly self-employed people did not qualify for the grants.

This is great news for any workers that are new to contracting and were therefore not previously eligible for support.

A fifth grant will also be available from May onwards that will target support for those most badly affected. This means only those whose turnover has dropped by 30% or more will continue to receive the full 80% grant for an additional 3 months. However, those whose turnover has dropped by less than 30% can receive a reduced grant of 30%.

Changes to income tax and personal allowances

Sunak announced that the personal allowance tax threshold will be frozen from April 2021.

What’s more, income tax thresholds are set to rise by 0.5%. The basic rate income tax threshold will increase from £12,5000 to £12,570 and remain at this level until 2026. Likewise, the higher rate threshold will also increase from £50,001 to £50,270.

Although this means you can earn an extra £70 without paying any income tax, as the thresholds are set to freeze until 2026, many people will be pushed into paying more income tax as their wages increase over the next 5 years.

These changes may impact umbrella company contractors who pay tax under the PAYE system, as they mean that thousands of workers might end up paying more tax in future years.

No delay to IR35

In April 2020 changes to IR35 legislation were postponed until 2021. Many contractors had hoped that there would be a further delay to the rollout of the off-payroll legislation in the private sector announced in the 2021 Budget.

After all, thousands of self-employed workers have already been badly impacted by the pandemic and are set to be further harmed by changes to IR35 legislation that will come into motion from April.

However, there was no further postponement announced in the 2021 budget.

There was no mention to the off-payroll rules from the Chancellor which has effectively put an end to any hopes from contractors of last-minute changes.

With no delays to IR35 announced, thousands of self-employed contractors will now be considering switching to umbrella. After all, working under an umbrella company automatically makes the contractor exempt from IR35 legislation, meaning there’s no need to worry about getting caught out.

If you have decided that this is the best path for you, let Umbrella Supermarket help with the next steps.

Let Umbrella Supermarket help you find the best umbrella company

Umbrella Supermarket will help you find the best umbrella company out there for your needs. After all, there’s plenty of choice when it comes to who you will work with, so it’s always best to do your research to find your perfect fit.

In just 2 minutes you can enter a few personal details into our handy umbrella comparison calculator and browse a list of umbrella companies best suited to your needs. Whether you are looking for more money or help with things like childcare credits, we help you cut out the noise and focus on the companies best suited to you. Why not try it for yourself?

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Job Retention Scheme for Contractors in 2021

The COVID-19 pandemic has impacted workers across the UK and contractors have been no exception.

Many of the 1.77 million independent contractors have either lost work altogether or have had contracts put temporarily on hold leaving them in a tricky position.

Fortunately, many of these contractors are eligible for the government’s Job Retention Scheme otherwise known as furlough, introduced to offer financial support for businesses and workers. This has been an essential source of income for many who have lost contract work as a result of the pandemic.

As we experience a third national lockdown, the furlough scheme has now been extended until the 30th April. So, if you find yourself out of contract work or have projects on hold, Umbrella Supermarket are here to explain what the Job Retention Scheme is, how it works and what this means for contractors.