Budget 2020 – everything freelancers need to know
Today was the new Chancellor Rishi Sunak’s first Budget, and the first one in nearly 18 months. The expected rollout of IR35 is of course the main thing to consider, however with coronavirus and several other key policy changes, we have had a look at the main positives and negatives for the self-employed.
The big picture
Ahead of the Budget, we learned that growth in the UK economy was alarmingly flat at 0.0% growth in the three months to January 2020. Here at IPSE, our last quarterly confidence index saw the lowest business confidence on record, so these figures were perhaps not a huge surprise - this was almost entirely down to the impeding IR35 changes this April.
Prior to the coronavirus crisis, there was mild expectation of an interest rate cut sooner rather than later. Now, following the lead of the Federal Reserve last week the Bank of England has cut interest rates from 0.75% to 0.25% in an effort to stimulate lending. Mark Carney, in one of his last appearances before handing over to Andrew Bailey said that “Activity is likely to weaken materially in the coming months…the reduction in bank rate will help bolster confidence at this difficult time."
The fact this was timed for before trading on the same day as the budget clearly indicated this was co-ordinated to soothe the market after a big drop in the FTSE 100 on Monday. The BoE is also clearly in close consultation with the government, as both mentioned by the Chancellor and illustrated by the range of support for the self-employed
The Office for Budget Responsibility (OBR) has also said it expects growth to fall to 1.1% in 2020, down from 1.4% last year. All in all, the Chancellor delivered his Budget against a gloomy backdrop.
The bad news for freelancers…
Disastrous IR35 changes set to go ahead
The changes in the private sector due to be rolled out have already produced much concern and negativity, seriously affecting freelancer business confidence. Although unmentioned by the Chancellor in his speech to the House today, in the fine print of the Budget there is confirmation that “the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020”. The government are going ahead with the changes to the off-payroll working rules with little regard to how they will affect the economy, especially with the coronavirus thrown into the mix after a year of Brexit uncertainty.
Though the government has made noises about having a “light touch” approach to the changes in the first year, this is meaningless for contractors already losing out as a result of their clients placing them ‘inside IR35’ or simply stopping hiring freelancers.
The government alluded to its review into the changes, which was heavily criticised by IPSE for not being independently chaired, but looks like taking little substantial action. This is by far the biggest disappointment of the Budget for freelancers.
Entrepreneur’s Relief is reduced
In our budget submission to the Chancellor, we cautioned against scrapping Entrepreneur’s Relief, which many self-employed people make use of, particularly as part of their retirement planning.
In the event, the government has opted for reform rather than abolition and will reduce the lifetime limit on gains eligible for relief to £1 million, rather than £10 million. While the Treasury states the move will mean over 80% of those who make use of ER will be unaffected, this will still dent the income of many entrepreneurs. Hidden away in the Treasury's policy costings document accompanying the Budget, the government also confirmed the change would be effective immediately.
The good news for freelancers…
Support through the Coronavirus
The self-employed are not entitled to sick pay or leave yet make up 5 million people working in the UK economy across every sector. IPSE wrote to the Health Secretary weeks ago to demand some action on this.
Thankfully, support for small businesses and the self-employed affected by the virus was the major feature of today’s budget. The government has moved in two ways: reforming the welfare system to make it easier and quicker to access for the self-employed, and setting out some financial support available for affected businesses.
The key measures announced are that:
- The much-criticised minimum income floor in Universal Credit will be temporarily relaxed for those directly affected by COVID-19 or self-isolating, ensuring self-employed claimants will be compensated for losses in income
- ‘New style’ Employment and Support Allowance will be payable for people directly affected by COVID-19 or self-isolating according to government advice for from the first day of sickness, rather than the eighth day
- People will be able to claim UC and access advance payments where they are directly affected by COVID-19 (or self-isolating), without the current requirement to attend a jobcentre
- Introducing ‘Time to Pay’ arrangements - a time-limited deferral period on HMRC liabilities owed and a pre-agreed time period to pay these back – for businesses and self-employed individuals in financial distress and with outstanding tax
- HMRC has set up a dedicated COVID-19 helpline to help those in need, and they may be able to agree a bespoke Time to Pay arrangement. HMRC will also waive late payment penalties and interest where a business experiences administrative difficulties contacting HMRC or paying taxes due to COVID-19.
- A new, temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, to support businesses to access bank lending (loans of up to £1.2 million) and overdrafts. The government will provide lenders with a guarantee of 80% on each loan.
- £3,000 cash grant for 700,000 small businesses currently eligible for Small Business Rates Relief or Rural Rate Relief, to help meet their ongoing business costs and a £500m hardship fund will also be provided to local authorities to support vulnerable people in their area - however it is unclear how self-employed can access these).
Some tax stability for the self-employed
The disastrous changes to IR35 aside, the Budget is mostly ‘steady as she goes’ on the taxation front. It delivers on the Conservatives’ election promise of a tax cut for 31 million working people. The Chancellor has increased the National Insurance contributions (NICs) Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, to £9,500 from April 2020. This will save the typical self-employed person around £78 in 2020-21.
More broadly, there are no rises in the rates of income tax, VAT or National Insurance, Corporation Tax remaining at 19%. Somewhat surprisingly Fuel Duty remained frozen too, which will be good news for many self-employed.
A promise of wider self-employment support
Despite having had little external consultation on it, the government appears to have fulfilled its manifesto promise of a review of self-employment in the Budget. We await more detail but according to the budget, the review covered access to finance including mortgages, better tax guidance, how to support self-employed parents and how to beef up the powers of the Small Business Commissioner.
We look forward to working with the government on these initiatives, which together provide a wide-ranging set of policies to support the self-employed. We will follow up with more information as soon as it is released.
Any other business?
The Budget confirms the government’s response to Sir Amyas Morse’s Independent Loan Charge Review and outlines what looks like a serious step-up in tackling the promoters of disguised remuneration schemes. HMRC will “publish a new ambitious strategy for tackling the promoters of tax avoidance schemes” looking at a range of policy levers to improve tax advice and drive bad promoters out of the market.
Spending on infrastructure was a major pledge from the Conservatives going into last year’s election and this has been another big focus of today’s announcements. In particular, self-employed people working in rural and hard to reach areas will benefit from the Budget announcement of £5 billion for gigabit-capable broadband rollout and funding to improve mobile coverage.
IPSE’s policy team will be looking through the full Budget document closely and we will update members and the wider freelance community on particular announcements, particularly IR35, and how they might affect you in the coming days.
Meet the authors
Policy Development Manager
Economic policy adviser