January 6th, 2021
What’s 2021 got in store for contractors?
As a brisk January begins to unfold, you may be wondering, as contractors, what’s coming up on the horizon that, as a contractor, you might need to be aware of.
2020 was a year of adaptations, this year presents more changes still – whether these affect your role or your mortgage plans, it’s worth knowing they’re on their way.
With another national lockdown upon us, it’s more important than ever to know where you stand in your role and with your plans going forward.
Brexit
Whether you were for or against Brexit, it’s now well underway and that means as a self-employed professional there are a number of ways it could affect you or your business.
Travelling & Working in the EU
Of course, whilst this has been complicated already for many contractors as a result of the current pandemic, travel is perhaps the most obvious change to be anticipated with Brexit.
Significantly for anyone that travels within the EU regularly, Brexit will end the freedom of movement to some degree. From January 1st you can now travel to most EU countries for up to 90 days in any 180-day period without a visa for purposes like tourism.
For business travel, however, such as travelling for meetings, conferences or providing services, you will need to check if there are any extra entry requirements such as visas or work permits for the country you’re visiting.
It may now be a requirement, if you are working on a longer-term contract, depending on who your client is, to pay into social security abroad, instead of National Insurance but you should check the guidelines for each country you are visiting.
You can read more about the changes here.
IR35
After the amendments to IR35 were delayed in March last year (in order to lessen the potential effects on freelancers alongside the pandemic), the changes to IR35 will come into action this year as of 6th April 2021.
But, what does IR35 mean for you and your business?
IR35 as defined by HMRC means off-payroll working; ultimately, the legislation is designed to make sure workers are taxed fairly and to identify contractors and businesses which are avoiding paying the appropriate level of tax.
If you operate ‘Inside’ of IR35 you must pay the same tax as an employee, ‘outside’ of IR35 does not make you tax-exempt, however, you can pay yourself a salary and withdraw further income from dividends.
If you are considering getting a mortgage, now could be the ideal time to do so if you expect your income to decrease once you begin working within IR35.
Check out our recent webinar on mortgage fitness for contractors which covers how IR35 might affect your mortgage plans in the year ahead from CMME’s head of mortgages, Simon Butler:
Stamp Duty Holiday End
Following the March 2020 lockdown, Chancellor Rishi Sunak implemented a holiday on Stamp Duty Land Tax for home buyers up to a certain threshold.
The idea behind this was to stimulate a market that had reached a standstill involuntarily in response to Covid-19.
It was a scheme that worked. Many homebuyers have benefited from the additional savings over the last year which increase exponentially based on the cost of the house.
The holiday is due to end in March 2021 leaving just three short months to benefit from the savings associated.
It’s important to note that, realistically, potential homebuyers wishing to take advantage of the stamp duty holiday should act quickly as the house purchase needs to be completed by this end date in order to be included within the holiday.
Here’s a breakdown of the Stamp Duty changes within the brackets:
| Property price | Previous stamp duty bill | Revised stamp duty bill | Stamp duty saving |
| £0.5k – £1.5k | £0 | £0.5k – £1.5k | |
| £200k – £250k | £1.5k – £2.5k | £0 | £1.5k – £2.5k |
| £250k – £300k | £2.5k – £5k | £0 | £2.5k – £5k |
| £300k – £350k | £5k – £7.5k | £0 | £5k – £7.5k |
| £350k – £400k | £7.5k – £10k | £0 | £7.5k – £10k |
| £400k – £450k | £10k – £12.5k | £0 | £10k – £12.5k |
| £450k – £500k | £12.5k – £15k | £0 | £12.5k – £15k |
| £500k – £925k | £15k – £36.3k | £0 – £21.3k | £15k |
You can find out more about the Stamp Duty holiday in our recent article here or on the government’s official website here.
Low Interest Rates
Though the Bank of England base rate is subject to regular review (the next one scheduled for 4th February 2021), the bank rate currently remains at a historical low after emergency reductions last year.
The Monetary Policy Committee meet regularly to review this rate as it influences all lending and savings in the UK in order to combat the risk of inflation.
With the rate at 0.1% currently this means that borrowing is currently much more affordable than it might be otherwise.
This means it could be an excellent time to consider your mortgage options:
Home Movers
Between the significantly low rates and the stamp duty holiday, now could be a great time to move however, these factors won’t last forever.
With more and more homeowners prioritising home offices and outdoor spaces in the last year, there are significant boons at present to consider taking action with your home move plans.
Remortgage
2021 presents a good opportunity to review your circumstances, with the rate remaining at this historic low, remortgage could potentially save you money by reducing your monthly repayments.
With house prices still on the rise as the new year begins, your house may be worth more now than when you originally took out your current mortgage deal, meaning you could potentially take advantage of being in a more favourable loan to value (LTV) bracket to remortgage or raise additional funds at a lower interest rate.
For more information on the Bank of England bank rate and the Monetary Policy Committee visit their site here.
Buy-To-Let
Landlords will face changes to taxation in the new tax year, as mortgage interest tax relief is phased out completely and amendments are made to capital gains tax.
Though anticipated for some time, the new rules coming into force at the start of the new tax year could have a significant impact on the tax burdens facing property investors going forward.
Under the new rules, landlords will only be able to offset 20% of their mortgage interest payments when filing their tax returns. The change will draw to a close the process of phasing out that began in 2017.
The 2020-21 tax year also brings a significant change to how capital gains tax (CGT) is paid. Typically, when selling an investment property you will need to pay CGT if you make a profit, though the amount you’ll pay depends on the size of the profit and your financial circumstances.
In the new system, landlords must declare and pay any CGT liabilities using the government’s new online service within 30 days of selling the property.
Help to Buy
More than 225,000 buyers have taken advantage of the previous Help To Buy scheme, though from 2021 this will only be a possibility for first time buyers. With the new Help to Buy scheme, the government will lend homebuyers up to 20% (40% in London) of the cost of a newly built home.
For homebuyers, they will pay a deposit of 5% or more and arrange a mortgage of 25% or more to make up the rest. The equity loan is interest-free for the first five years.
You can find out about the new scheme on the government’s official website here.
The Recovery of the Economy
In times of recession, the market for self-employed people typically grows significantly as people find alternative ways to work.
Though IPSE reports a 5% drop in self-employment between 2019 and 2020 as a result of the current economic situation it may be expected that this is the lull before a boom in the numbers of the self-employed.
The key reasons people opt to become a freelancer are for the flexibility and control over work that it offers (88%), meaning that in times where conventional work scenarios become tenuous, freelance or contract work can become increasingly appealing to many.
Though the current lockdown isn’t expected to impact the housing market, it may be worth thinking about your mortgage plans ahead of time as delays could be expected as lenders previously cited staff shortages and valuation backlogs during the previous lockdown as a potential cause for slower processing times.
With these things in mind – 2021 should be the year to adapt, to recover and to, hopefully, be stronger than ever before.
Useful Resources:
- How Contractors Could Save £100 a Month by Switching Deals | CMME
- Why This Tax Year End Could Be The Most Important Ever | CMME
- How To Beat The Stamp Duty Holiday Deadline | CMME Explains
Whether you want to talk specifics or are just after some general advice, CMME can help. Speak to us today on 01489 223 750 for a completely free, no-obligation mortgage consultation. Or click the button below.