Autumn Statement 2023

Today’s Autumn statement, delivered against a back-drop of inflation falling and the economy and public finances stabilising, was anticipated with a degree of optimism.  Whilst there is some good news in there for the majority of the workers, I think there has been a missed opportunity to extend the tax cuts to all of the flexible workforce.

National insurance cuts

The headline grabbing measure announced today is the reduction in the rate of national insurance, benefitting 29 million working people. The main rate of Class 1 employee National Insurance contributions will be cut from 12% to 10% from 6 January 2024, with employees benefitting from January onwards. This means the average worker on £35,400 will receive a tax cut in 2024-25 of over £450. The government is also cutting taxes for the self-employed (sole traders and those working via partnerships) from 6 April 2024.

The government is reducing the main rate of Class 4 self-employed NICs from 9% to 8%, and will abolish Class 2 self-employed NICs. 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.

These two measures are of benefit to all workers taxed under PAYE (including umbrella company employees and contractors working on inside IR35 contracts) and self-employed sole trader or members of partnerships.  Despite these two measures benefitting 31 million workers, they are of little benefit to the hundreds of thousands of self-employed contractors working via their own limited companies.  This is a disappointing oversight from the Government who again appear to have failed to recongise this critical part of the UK workforce.

Off-payroll changes

There is however some potentially good news today from self-employed contractors.  HMRC have announced that they will proceed with their proposals to introduce and “off-set” mechanism for end clients.  The government will legislate in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer (end client or agency) to account for taxes paid by a worker and their limited company on payments received where an error has been made in applying the off-payroll working rules.  This measure significantly reduces the financial risk associated with end hirers engaging with limited company contractors working under outside IR35 contracts.  This reduction in risk may be enough for some end clients to reassess their policy for engaging with personal service companies and could result in the removal of blanket bans on PSCs or blanket ‘inside’ IR35 determinations.

Umbrella regulation

It is disappointing to see no reference in any of today’s publications to the recent consultation on the regulation of umbrella companies.  This is a much needed policy to create a level playing field in the sector, particularly around tax avoidance, and to protect umbrella employees from unethical practices.  Given the recent consultation on this issue (closed in the summer, similar to the off-payroll consultation mentioned above) it was hoped that an update on progress towards legislation would be provided today. However, the lack of any update probably indicates that this policy has been put on the shelf until after the General Election next year.

Promoters of tax avoidance

On a broader topic the government is legislating in the Autumn Finance Bill 2023 to introduce tougher consequences for promoters of tax avoidance schemes, which are particularly prevalent in the contractor sector. These include a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop; and a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company. We welcome this change but we ask for further progress specific to the regulation umbrella companies.