Mini-budget: how much better off could freelancers be?
This report was updated:
National insurance hike is scrapped (read more in the report)
- Corporation tax rise cancelled, keeping it at 19% as government sets sights on 2.5% trend rate of growth.
- Basic rate of income tax cut to 19% in April 2023 – one year earlier than planned – with 31 million people getting on average £170 more per year.
- Stamp Duty cuts will help people on all levels of the property market and lift 200,000 homebuyers every year out of paying the tax altogether.
- The Growth Plan 2022: documents – GOV.UK (www.gov.uk)
Some of us got popcorn ready for Friday’s (23 September) matinee showing of Kwasi Kwarteng’s mini-budget which was aired live from the House of Commons. The central plot of the budget was tax cuts, which most of us rejoiced in, but some experts see some of the tax cuts doing more harm than good to the British economy.
Commenting on the Chancellor’s announcements, Mark Littlewood, Director General at free-market think tank the Institute of Economic Affairs, said:
“This isn’t a trickle-down budget, it’s a boost-up budget. The government has announced a radical set of policies to increase Britain’s prosperity – from cancelling the corporation tax rise, to cutting stamp duty and extending investment allowances.
“It’s refreshing to hear a Chancellor talk passionately about the importance of economic growth and supply-side reforms, rather than rattling off a string of state spending pledges and higher taxes. Only by bearing down on the amount of tax the state collects across the income spectrum, and reducing the regulatory burden, can we create better conditions for growth.
Paul Johnson, IFS Director, is not convinced the tax cuts will bring the British economy the type of fiscal stability it needs to also create growth.
“Today, the Chancellor announced the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up. Instead, the plan seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path, and hope that we get better growth. This marks such a dramatic change in the direction of economic policy-making that some of the longer-serving cabinet ministers might be worried about getting whiplash.”
Mr Kwarteng has shown himself willing to gamble with fiscal sustainability in order to push through these huge tax cuts. He is willing to shrug off the risks of inflation, and to invite significantly higher interest rates. And he has avoided scrutiny by presenting a Budget in all but name without accompanying forecasts from the Office for Budget Responsibility.Paul Johnson, IFS Director
Liz Truss’s sound bites and campaign messages that filtered through the media in recent weeks caught the attention of the self-employed and the promises have all come true through the mini-budget. Including and not expected, a repeal of IR35, which will boost job opportunities for freelancers and digital nomads as reported by The FI.
Here are just a few to jog your memory.
If you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.The Sun
I would conduct a full tax review, looking at things like business rates.Leadership hustings, Birmingham
I would not do the corporation tax hikes because I think it’s vitally important that we’re attracting investment into our country.ConservativeHome
The proverb great oaks from little acorns grow is perhaps a reflection of what is to transpire from the upcoming mini-Budget. Tax cut considerations are most welcome, but what of other pressing matters impacting the self-employed?
“If the Government wants growth, then it needs to make it easy to hire the self-employed and engage with smaller niche businesses,” says Dave Chaplin, CEO of contracting authority ContractorCalculator.
He continues, “And that means delivering certainty of outcomes for engagers, on matters of both rights and tax. At the moment, the employment status issue is a mess, both for rights and tax, leaving hiring firms fearful of engaging with freelancers because it might mean a business destroying bill many years later.”
Not addressing the injustices of the Off-payroll legislation and its links to disguised remuneration schemes could instigate newfound financial hardship, according to Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance.
“The Off-Payroll and the cost-of-living crisis have created the perfect storm for such schemes to thrive and thrust innocent victims into more financial hardship,” says Temple.
Temple welcomes certain tax cuts as they will benefit the workforce ecosystem.
“Cutting corporation taxes, quashing the planned hike in National Insurance that was announced by the former Chancellor earlier in the year and cancelling the social care levy that is due to come in next April that would have an onerous impact on recruiters and their businesses would all help to ease economic pressures,” says Temple.
Unless people receive some help as a matter of urgency, I anticipate that some workers will be tempted to sign up to disguised remuneration schemes that promise more take-home pay. Such schemes should be avoided at all costs.Crawford Temple, CEO of Professional Passport
Stamp duty cut: how will it impact housing prices?
Liz Truss’s plans to cut stamp duty in Friday’s mini-Budget have not exactly been welcome by many mortgage brokers and estate agents for a host of reasons. Malcolm Davidson, Director of Hull-based broker, UK Moneyman, believes stamp duty is a major obstacle for the UK housing market:
Why should anyone be taxed to buy a family home in the first place? There are plenty of other ways to raise tax revenue without punishing the aspirational.
The only thing I would say is make it a genuine tax cut, not a holiday, to avoid another “cliff-edge” rush to action.
Stamp duty puts homeowners off putting their properties up for sale and this is a major contributing factor in the lack of homes currently on the market. If stamp duty were reduced it ought to encourage more people to sell.Malcolm Davidson, Director of Hull-based broker, UK Moneyman
Davidson says stamp duty is “ripe for overhaul”.
“It’s paid by buyers on the asset that someone else has made all the profit on. If it really has to remain, the Treasury ought to consider transferring the charge to the seller,” he says.
Emma Jones, Managing Director of Frodsham-based broker, When The Bank Says No is not convinced that a stamp duty cut right is the right step for the property market as she believes most people are more concerned about their monthly outgoings rather than stamp duty.
“Daily conversations we are having are around budget and to be quite honest stamp duty is an afterthought,” says Jones.
The stamp duty incentive was a great push during the pandemic but I can’t help but wonder if that’s what’s got us to where we are, with significant price increases, bidding wars and people now potentially exposed as they have over-borrowed.Emma Jones, Managing Director of Frodsham-based broker, When The Bank Says No
Jomes says house prices are higher than ever and now mortgage rates are following.
“More increases in prices, which this move could trigger, will simply make mortgages even more unaffordable and prevent many people from getting on the property ladder at all,” says Jones.
Reverse national insurance and corporation tax hikes?
When Rishi Sunak introduced the 1.25 per cent rise in National Insurance to help pay for health and social care, he didn’t make many new supporters in the freelancer economy. Truss has made the promise to reverse the rise in National Insurance, which will mean more money in everyone’s pockets.
That means anyone earning £20,000 would have £93 left in their pocket, and anyone earning £30,000 will not have to hand out an extra £218, or £468 for someone earning £50,000 or a whopping £843 if earning £80,000 (source inews).
“There have been whispers of reversing the planned hike to national insurance that came into effect in April as well as the increase of corporation tax from 19% to 25% next April,” reported Proactive Investors.
On September 22, the government announced that the national insurance increase hike was reversed, a day earlier than anticipated.
“This is a bold statement from the Chancellor and new Prime Minister, who seem to be setting out their stall as a government intent on cutting taxes from the word go,” responds Seb Maley, CEO of Qdos to the news.
It is a step in the right direction for self-employed workers, millions of whom have been on the receiving end of short-sighted and potentially sector-threatening tax hikes in recent years.Seb Maley, CEO of Qdos
Higher-income tax thresholds could be a game changer
If Liz Truss were to raise the higher rate threshold for income tax in England and Wales to £80,000 from £50,720, middle to higher-earning freelancers and contractors could finally have something to celebrate about.
The combination of the national insurance cut, a 1p income tax cut and the higher threshold could bring a savings of £7463 for anyone earning £80,000 and £7,913 for a freelancer or earning £100,000, according to an inews report.
Energy package: what does it mean for WFH freelancers?
The Energy Package for households and businesses can be found here. More government assistance is expected to be announced for those households and businesses on off-grid heating oil. At the moment, it is looking like £100 has been earmarked for oil heating in addition to the gas and electricity energy package.
Here are some cost-saving tips:
While tax cuts are welcome by most, freelancers have to be mindful that these tax breaks might not be here forever. To grow your revenues and keep your expenses down, you have to work the system and be resourceful.
- Take advantage of the apprenticeship levy if you are paying for it: get more hands on deck to build your business or delegate the tasks not making you money
- Watch your energy usage and bills regardless of the energy package; if you are overpaying your direct debit see if you can get a refund or squirrel away the overpayments for the winter months
- Cut down on non-business costs, such as childcare by creating a parent pod
- Use local fruit and veg markets to cut down on supermarket bills – negotiate at the end of the market day. Here’s a site that can find local sources in your area: Big Barn
- Buy groceries online if you are noticing too many trips to the supermarket for just one thing and coming out with non-essentials. When you buy online it’s easier to budget and see what you are spending and on what.
- COVID is still making the rounds so protect yourself and your family so you don’t need to take time off from work. Consider wearing a mask in shops; exercise and take out time for destressing activities.
- If your bank offers cashback, coupons and discounts, start using them. You’ll often find them on your banking app. If your bank isn’t doing much for your loyalty, then start looking elsewhere
- Cut out one streaming subscription and place the money saved towards paying off debt, or your pension or a even course or app that could enhance your business which you can deduct as an expense.