‘Double-taxation’ of IR35 to go, while significant changes to National Insurance to come for sole traders
In his Autumn Statement today (Wednesday 22 November), Chancellor Jeremy Hunt announced a raft of tax cuts for sole traders, with the Budget document that followed confirming that the double-taxation of IR35 will be fixed.
So-called ‘double-taxation’ occurs in the event of an incorrect IR35 status determination. Where this happens, HMRC tries to recover any tax liability from the fee-paying party. However, when calculating this liability, any taxes paid by the contractor aren’t accounted for. This means HMRC collects more revenue.
Resolving this will help to remove one of the well-known complexities in the off-payroll rules, as well as reducing the level of financial risk that end-clients and fee-paying parties must shoulder when looking to engage contractors.
There were also some meaningful tax cuts offered for sole traders, with changes to the rate of Class 4 National Insurance Contributions (NICs) and the abolition of the Class 2 NICs rate.
Full capital expensing has also been made permanent. This policy allows businesses to deduct 100% of the investment costs for qualifying items from their profits, reducing their reportable profits for Corporation Tax.
The media forecast
Against a chaotic economic and political backdrop – including a surprise Cabinet reshuffle – and with the tax burden at a 70-year high, the Chancellor faced calls from within his own party to cut taxes.
Those calls only increased after news, last week, that inflation had fallen sharply, to 4.7% in October – down from a peak of 11.1% in October 2022. The drop meant that Sunak and Hunt had met their target of halving inflation, though it remains ahead of the Bank of England’s 2% target.
With fiscal drag driving up tax take for the year, the Chancellor found room in the budget for tax cuts.
Positive changes, but experts rue ‘missed opportunities’
After successive tax hikes and freezes in previous years, the move to cut the tax burden facing the self-employed is viewed as a welcome one, providing relief for the UK’s flexible workers.
It also means the Chancellor has delivered on his promise to put the UK “on a path to a lower-tax economy”. However, experts from across the temporary staffing sector have pointed out gaps in the Statement.
Terry Payne, Managing Director of the temporary staffing app, hubbul, called the abolition of Class 2 NICs, and the cut to Class 4 NICs, as “potentially game-changing for sole traders”.
But with many people turning to freelancing and side hustles to increase their earning power, he suggested the Chancellor “missed an opportunity” to provide further support to these workers.
“Increasing the tax-free trading allowance – which means workers can earn just £1000 via self-employment before tax kicks in – would have put money directly into these workers’ pockets”, he said.
Similarly, Julia Kermode – CEO of umbrella compliance firm, PayePass – agreed that cutting National Insurance will “help to alleviate the cost pressures people are facing”.
Alongside tax cuts, Kermode believes that the government should be maximising revenues by cracking down on tax avoidance in the umbrella sector, which costs “billions of pounds” each year.
“During today’s pantomime, the government has missed yet another opportunity to deliver on its promise to regulate the umbrella industry”, she said.
“We need to get beyond the endless publishing of consultations and actually achieve some form of regulation”, Kermode concluded.
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