The Chancellor’s not-so-mini financial statement last Friday brought some welcome news to many, not least those in the contingent worker industry. Of course, the headline of bringing forward by one year the already planned reduction of basic income tax levels to 19% from 20% will be of benefit to all workers, as will the rollback of the Rishi Sunak’s 1.25 percentage point increase for both Employers and Employees National Insurance Contributions. This latter measure will in fact benefit umbrella employees to an even greater extent as, often, both sets of NICs are deducted from the headline assignment rate so it’s good to see that this double whammy will be gone from November 6th this year.
In keeping with this dividend tax rates were also addressed by the Chancellor and dividends will be taxed at 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers with the additional rate abolished from April 6th 2023.
Some of the other measures Kwasi Kwarteng announced, such as the scrapping from April 6th 2023 of the 45% top rate of tax will likely benefit those on higher incomes, and there’s been much ado about that in the media. The reductions in SDLT – a tax on the housing market – should help first-time buyers and those at the lower end of that market and also stimulate the building of much-needed new homes. Another measure the Chancellor announced is the introduction of investment zones where companies will be exempted from Employers NICs for employees on up to £50k per year. Chris Bryce, CEO of FCSA said, “This is an interesting move designed to encourage local development and employment. FCSA will be keeping a close eye on how this is operated in practice.”
The biggest news for our industry was the rollback on April 6th 2023 of the 2017 and 2021 changes to off-payroll working regulations – commonly known as IR35. The original IR35 placed the burden of compliance and decision-making – inside or outside – on the contractor and the changes moved that burden to the end-user. Many, if not most, end-users took a look at the complexities of the regulations and the abysmal CEST tool and decided on the risk averse route of simply blanket banning limited company contractors and forcing all their contractors to on-payroll employment or to seek umbrella company employees. Whilst IR35 is very much still there, reverting to the original version is at least a step in the right direction and will restore the much-needed flexibility and agility that benefits the UK economy so greatly.
Bryce welcomed the news on IR35 but also issued a note of caution saying, “This is great news for those workers who want to choose their own path and at least goes some way to undoing the damage caused by IR35 Mark II. However, it remains to be seen if end-users will rapidly return to engaging contractors via limited companies, with them perhaps waiting to see what the overall market does. Another issue is that a large number of contractors will be unable to quickly re-establish their businesses having closed them down as a result of the earlier government policy mis-step. There are tight regulations about this, and I strongly advise contractors to get advice from their accountants before they try to move forward. FCSA does expect to see a movement back from umbrella employment to independent limited companies, but I suspect that this will be gradual rather than speedy. Many FCSA accredited members provide both accountancy and umbrella services and I’ve no doubt that they’re in a great position to advise workers of the best options.”