The Autumn Budget – predictions for contractors

Donald McNaught

Donald McNaught

Restructuring Partner

13 November 2017

For many contractors, the prospect of the Autumn Budget is akin to that upcoming visit to the Dentist. In recent years several Budget statements have left contractors worse off, with tax changes limiting the advantages of self-employment.

So, what’s on the cards for contactors?

Perhaps the biggest worry for contractors is the possibility that the Chancellor will extend off-payroll working rules in the public sector to the private sector. The key rule change would see the responsibility for judging a private sector contractor’s IR35 status pass from the contractor to the end client. This could mean that in some cases, tax and national insurance could be deducted from payments made to the contractor if the end client believes the work carried out is caught by the IR35 rules. This extra level of bureaucracy for employers may make them less likely to hire contractors in the future.

An article in The Sunday Times recently suggested that the Chancellor is considering a £1bn raid on freelance workers in a new blitz against “disguised employment” in the private sector. With the Office of National Statistics estimating that around 450,000 people earn most of their income through personal service companies it is unclear at this stage how many people would be affected by this change.

IR35 reforms for public sector workers

In April, similar reforms were introduced for public sector workers. HMRC expects to reap an extra £265m in the current tax year as a result.

The Treasury recently confirmed that public bodies added 90,000 people to their payroll in the three months from April to June when the new rules came into force. Most had been working as contractors previously.

The British Medical Association has been open in its opinion of the reforms and the impact on the public sector branding the switch an “administrative disaster” for the health service. 

Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed (IPSE) is asking government for consultation before any similar reforms are cascaded to the private sector.

Proposed measures in the Spring Budget

At this year’s Spring Budget, Phillip Hammond announced his intention to raise Class 4 National Insurance Contributions (NICs), only paid by self-employed people, from 9% to 11% after two years.

A subsequent backlash from backbench MPs forced the policy to be dropped, after it was pointed out that the party’s 2015 manifesto pledged not to increase NICs, income tax or VAT.

When he made the U-turn though, Hammond said: "It remains our judgement that the current differences in benefit entitlement no longer justify the scale of difference in the level of total NICs paid in respect of employees and the self-employed" indicating that the Chancellor still favours the policy. So, after the election earlier this year, could we see the NICs increase re-appear?

It’s hardly surprising then that many contractors will view the Autumn Budget with a heightened degree of apprehension.

Closing a limited company efficiently

If the worst-case scenario should unfold, then many contractors may be considering their position and if looking to close their company, wondering how they can do this as cost effectively as possible. One option is a members’ voluntary liquidation (MVL). Our dedicated ContractorMVLs service is specifically designed to meet the needs of contractors looking to close their Company as tax efficiently as possible. You can find out more about this on our dedicated page.

Autumn Budget insight

Our team will be watching the Autumn Budget with interest on 22 November. We’ll be reviewing the measures closely and producing a handy guide to the proposed measures and how these could impact you. Follow our team on Twitter for updates throughout the day.