We highlight the key takeaways and expert reactions to the Autumn Statement and what lies ahead for the self-employed including freelancers, contractors and small business owners
The Autumn Statement 2023, delivered by Chancellor Jeremy Hunt brought forward a range of measures aimed at addressing the UK’s economic challenges and supporting businesses and individuals. While the statement focused on broader economic measures, it also included changes that will impact the self-employed, freelancers, contractors, IR35, and the umbrella sector. Here are some key takeaways:
- The government is cutting taxes for the self-employed from 6 April 2024. The government is reducing the main rate of Class 4 self-employed NICs from 9% to 8% and will abolish the outdated and “needlessly complex” Class 2 self-employed NICs, reforming and simplifying the tax system. Taken together these changes will benefit around 2 million self-employed individuals and result in an average self-employed person on £28,200 saving £350 in 2024-25.
- Workers will have the option to nominate the fund their employer pays into for their pension pot.
- The government is eliminating the rule that restricts savers from contributing to more than one ISA of the same type each tax year. This change, effective from April, will allow savers to hold multiple cash ISAs simultaneously.
- From 1 April 2024, the National Living Wage (NLW) will increase by 9.8% to £11.44 with the
- age threshold lowered from 23 to 21 years old. This represents an increase of over £1,800 to the annual earnings of a full-time worker on the NLW and is expected to benefit over 2.7 million low-paid workers
- The government will tackle tax non-compliance by introducing the largest package of measures since 2016. This is forecast to raise an additional £5 billion of tax revenue over the next five years, which would otherwise have gone unpaid, to fund vital public services. Yet, even off-payroll experts are not sure what this means.
- Off-Payroll Working (IR35) – calculation of PAYE liability in cases of non-compliance – The government will legislate in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules. In other words, HMRC will not tax employers more than they should. We cover this in more detail below.
National insurance reform and double-taxation of IR35
Limited company freelancers won’t benefit as much as others when it comes to the latest tax cut announcements. That’s according to Seb Maley, CEO of self-employed insurance provider Qdos.
It’s the same old story for those working through their own limited companies, who in reality won’t experience the benefits of these tax cuts.Seb Maley, CEO of Qdos
“Major national insurance reform is a timely boost for millions of self-employed workers in the UK, who will take home more money after tax. It’s an important win for sole traders,” says Maley.
However, Maley says, “It’s the same old story for those working through their own limited companies, who in reality won’t experience the benefits of these tax cuts.”
He continues, “The announcement in the Budget document of a formal fix to resolve the completely illogical ‘double-taxation’ of IR35 under the off-payroll working rules is hugely welcome, for contractors and the businesses engaging them. By reducing the perceived financial risk of engaging contractors, many businesses may start to reverse contractor bans. It’s a big development.
“Tackling late payment is good news for all small business owners, but this isn’t the first time grand promises have been made. The government must finally deliver and stop the scourge of late payment once and for all.”
IR35 is taking away the UK’s “edge”
Despite calls from some industry bodies for a review of the IR35 off-payroll working rules, the Chancellor announced that the government will not make any changes to the current IR35 framework at this time. This means that the responsibility for determining whether a contractor is within or outside IR35 will continue to lie with the end client.
Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, is not convinced the Conservative government understands the implications that existing Off-payroll legislation has on the self-employed or the larger economy when it comes to innovation.
The Tories failed the self-employed by allowing HMRC to push the damaging off-payroll reforms through Parliament, which harmed the people who facilitated growth and gave the UK an edge.Dave Chaplin, IR35 Shield
“Jeremy Hunt claims he focused on growth. If he is so focused on growing the economy, he should have unshackled the UK’s flexible self-employed workforce by repealing the unworkable and deeply flawed Off-payroll legislation,” says Chaplin.
He continues, “The Tories failed the self-employed by allowing HMRC to push the damaging off-payroll reforms through Parliament, which harmed the people who facilitated growth and gave the UK an edge.
Chaplin does point out the government has confirmed that a long overdue fix will happen in April 2024, eliminating the double taxation flaw that has seen contractors and firms paying combined tax rates over 100%. “However,” Chaplin says, “despite this fix, a legislative lick of paint doesn’t help rev up the economy. Off-payroll has been a non-runner from the outset.”
After years of unstable government, the Tories are sunk. Hunt could turn up at every voter’s front door with a bundle of £50 notes, but it would not work. The people want a well-functioning Government, not last-minute bribes in the form of tax cuts handed out by the remaining survivors of a sinking ship. Let’s hope Labour seizes the day and helps self-employed people retain the right to be their own boss – a right the Off-payroll legislation has cruelly taken from many citizens.Dave Chaplin, CEO IR35 Shield
Chaplin does welcome the Chancellor’s decision to reduce taxation on self-employed workers operating as sole traders. “It was an important acknowledgement by the Chancellor that will support a key group of workers who do so much for the UK economy,” he says.
Umbrella sector set for more pressure
Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance has mixed feelings about the cut NI contributions. He says the cuts will be welcomed by “genuinely self-employed workers” who he says will see an increase in their take-home pay.
However, he believes the move could put “increased pressure” on the umbrella market where he says, “we could see an increase in the use of false self-employment models.”
He explains, “That risk will require greater enforcement by HMRC across the sector to prevent further market distortions. The decrease in Employee National Insurance to be introduced in January by 2% will also be welcome news to umbrella workers who will see more money in their pockets.”
Temple also noted that the government is legislating in the Autumn Finance Bill 2023 to introduce tougher consequences for promoters of tax avoidance schemes. These include a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop, says Temple.
He added that it also includes a new power enabling HMRC to bring disqualification action against directors of companies promoting tax avoidance, including those who control or exercise influence over a company.
However, Temple says nothing has been put into action as yet. “These are nice words full of good intentions but they need to be supported by effective enforcement action which has been sadly lacking across the sector,” he says.
Continuing, “HMRC has access to all the data it needs to identify the criminals peddling these schemes…tax avoidance is costing the Treasury millions of pounds each year which our economy can ill afford.”