Budget 2020 – What It Means for Entrepreneurs, Freelancers and the Self-Employed
Well, that’s it for another year… Budget 2020 is done and dusted. But how will the new announcements affect those who are self-employed, the backbone of Britain’s economy from start-up entrepreneurs to freelance creatives, and what will it all mean? We have put together a useful article breaking down the Budget for self-employed.
With a new Boris Johnson government, along with a brand-new Chancellor in Rishi Sunak, and with all eyes on COVID-19 preparations, the support for small business was somewhat hidden away. Billions for the NHS to help combat Coronavirus means you need to dig a little deeper to find out what it all represents for Britain’s millions of small business owners.
The Covid-19 pandemic will mean 2020/21 is a lean year for businesses so let’s find out what the Budget will do to help small businesses.
The Budget 2020 Big Takeaway!
HM Government has created a myriad of support vehicles to help small businesses during this challenging period. The budget is full of small business grants and loans – however what’s “problematic” is that the Treasury is being somewhat vague about what constitutes a small business. This could mean microbusinesses are squeezed out by better-funded medium-sized businesses.
Income Tax – No Change
Conservative Chancellors do love to increase the personal allowance – from George Osbourne to Phillip Hammond (with Sajid Javid even in favour) – increasing the allowance means more working people technically get to keep more of their own income. Sunak has eschewed this traditional Tory giveaway. This all means the amount one can earn before paying income tax will remain the same at £ 12,500 before the 20% tax bracket kicks in. Furthermore, the £50,000 threshold for 40% tax also remains.
National Insurance – Big Changes
On the National Insurance front, there are big maneuvers at play. The current experience finds employees and the self-employed paying NIC contributions at a threshold of £8,632 or £166 per week. However, from April 6th, 2020 that threshold will increase to £9,500 – nearly a thousand-pound threshold increase. Remember, Prestige Business Management can manage NIC contribution increases through our bespoke payroll services. If you are a Prestige Business Management payroll client, all budget-related increases will be automatically factored into your April payroll process.
Class 2 NIC – Increases
The government increases NIC class two contributions. This is a statutory contribution that self-employed workers and freelancers pay to access state benefits – from the basic state pension, maternity and paternity along with bereavement benefits and allowances. This is increasing from £3 a week to £3.05p a week from April 2020 for the 2020/2021 tax year. This means an extra £2.60 a year!
Employer NIC Allowance Increases By A Thousand Pounds
If you have employees, this budget could see your employee costs decrease. From the 6th of April 2020, you could receive a reduction worth up to £4,000 a year on your NIC bill. The allowance has increased from the previous £3,000 annual allowance.
What this all means is that as an employer, you only start paying Class 1 (Secondary) National Insurance Contributions once your payroll has used up the entirety of the £4,000 credit allowance (or until the tax year ends). Thereafter the standard rate of 13.8% will kick in for all businesses.
Reductions in Entrepreneurs’ Relief
The Enterprise Tax Relief has seen a major reduction after many commentators and social policy advocates argued the tax wasn’t working. From March 11th, 2020, the lifetime “limit” on gains that are eligible for Entrepreneurs’ Relief has been reduced by the Chancellor from £10 million to £1 million. So, this means you will be taxed at 10% on all qualifying assets in relation to gains – this is in relation to selling a business.
Tax-Free Capital Gains Allowance Increased
Do you pay yourself a dividend from your business? Well, the Chancellor has increased the tax-free allowance available from £12,000 to £12,300 from April 6th, 2020.
“Use of Home” Deduction Raised for Home Workers
As a freelancer, you may work from home and the Budget has kindly increased the flat-rate amount you can claim for household expenses like water, gas, and electricity. The amount you can “offset” against in financial terms has increased from £4 per week to £6 per week starting on the 6th of April 2020.
Cost of Borrowing Has Gone Down
Interest rates have gone down. This news could help see your borrowing costs reduced significantly. The Bank of England base rate was cut from 0.75% to 0.25% which now means the lowest level of borrowing costs in history is available to small businesses that qualify.
Corporation Tax Stays The Same
Not great news for Limited Companies. HM Government was talking about decreasing corporation tax to 17% for the 2020/21 tax year in line with past reductions. However, the rate remains the same.
Budget Help for Small Business – Coronavirus Support
This support is in two different formats. For the self-employed the two avenues of support are as follows:
The first avenue of support; If you are ineligible for statutory sick pay, which means you earn less than the NIC Class 2 threshold of £9,500, you will be automatically eligible for Employment and Support Allowance (ESA) from the first day of “illness” rather than the traditional first day after seven initial days of illness. Coronavirus self-isolation now demands that benefits like ESA are accessible to the working public.
The second avenue; the Government has decided to remove the minimum income barrier for Universal Credit to help self-employed freelancers and entrepreneurs compensate against any losses during any Covid-19 illness periods. Low-earning self-employed tradespeople or business owners can access this benefit immediately. Furthermore, the rules and structure of Universal Credit make it more accessible than ESA. You can apply online for this benefit if you are suffering from Covid-19 or during the early self-isolation stage.
Finally, the Government has put aside £500 million in a “hardship” fund which will be accessible to Local Authorities to help target economically “vulnerable” individuals within their geographic locale. There isn’t much in the way of detail for this new policy.
For Limited Companies, the Government wants to help businesses struggling with increased costs along with cash flow problems. The Coronavirus Business Interruption Loan Scheme is a new scheme that gives banks access to Treasury funds. The fund is worth around £1bn to help inject extra support loans to help SMEs survive any economic periods of uncertainty. HMRC will also launch a dedicated helpline for companies who will need to defer tax payments for a short period to help improve cashflow outlays.
Other support mechanisms for limited companies
Those that lease commercial property and are eligible for the Small Business Rate Relief or Rural Rate Relief schemes. Government set to provide £2.2 billion in additional funding for local authorities. This should help 700,000 companies benefit to the tune of £3,000 each.
Pension Tax Breaks – High Earner Contribution Changes in Budget
Before this budget, if you earned less than £110,000 you could contribute up to £40,000 to a pension scheme. However, the Treasury has changed this. Now you can contribute up to £40,000 a year if you earn less than £200,000 a year. This means the cap on contributions applies to your total pension pot.
Budget Suprise – IR35 Is Going Ahead As Planned
The much-despised IR35 changes are going ahead as planned – rather cowardly the red book afterward stated that the Government was moving ahead full steam with the IR35 rollout. The Chancellor didn’t mention this once during his Budget statement. Disguised employment is the reason the HMRC are implementing off-payroll rule changes. The changes in legislation will come into force after April 6th, 2020.
Prestige Business Management can help your business grow. We keep abreast of the latest budgetary and HMRC guidance and our tailored services can help you save time, money and effort. From payroll services to bookkeeping, we can help you become more productive with your time. Why not call us today on 0203 773 2927 to find out how the 2020 budget could affect your business?