Budget 2020 – Highlights for Contractors
The Chancellor of the Exchequer Rishi Sunak has delivered his first budget and with attention largely focussed on dealing with the Coronavirus (COVID-19), there were very few surprises for the contractor population.
Whilst not addressed in the budget speech itself, buried in the red book under section 2.178, we received confirmation that the review of changes to the off-payroll working rules - commonly known as IR35 - has been concluded and other than few tweaks around the edges, the changes will come into effect 6th April.
Whilst many had speculated that Entrepreneurs Relief would be abolished, we are pleased to see it survive, albeit the lifetime limit for claiming a reduced 10% rate of Capital Gains Tax on qualifying disposals has been reduced from £10m to £1m. This is unlikely to affect most contractors, so it remains a useful consideration should a contractor decide to close their personal service company.
Tax Relief on Pension Contributions
Most notably, tax relief on pensions has been retained, with the threshold income limit increased from £110,000 to £200,000 and adjusted income limit increased from £150,000 to £240,000.
Anyone with income below these levels will not be affected by the allowance taper and will receive full relief on pension contributions up to £40,000 for the 2020-21 tax year.
For those with adjusted income exceeding £240,000, their annual allowance will be reduced by £1 in every £2 of adjusted income above £240,000 down to minimum level of £4,000.
Carry Forward Allowance for Pension Contributions
The option to carry forward any unused contribution allowance from the last three tax years remains – so for those who have been a member of a registered pension scheme during this period, they may carry forward up to £40,000 in unused allowances from each of the three previous tax years – providing the potential to contribute £160,000 from earnings in 2020-21.
The maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, has been increased from £1,055,000 to £1,073,100.
As announced in the lead up to the General Election, the Primary and Secondary Thresholds for paying National Insurance will increase to £9,500 and £8,788 respectively. A typical contractor employed by a payroll umbrella will see their take home pay increase by £115.08 per annum from April 6th, 2020.
Statutory Sick Pay (SSP)
Alongside the Prime Minister’s announcement to temporarily allow SSP to be paid from the first day of sickness absence, rather than the fourth day for people who have COVID-19 or have to self‑isolate, in accordance with government guidelines, the government has temporarily extended SSP cover to anyone who is unable to work because:
they have been advised to self-isolate; or
they need to provide care to someone who is in the same household, displays COVID-19 symptoms and has been told to self-isolate