Businesses will engage more off-payroll workers to avoid higher costs, suggests Dave Chaplin ahead of Autumn Statement
With the Autumn Statement approaching, speculation across the media has been rife, with rumours circulating around potential changes to tax policy that may be announced.
Since coming to power, the Labour government has identified an estimated £22bn “black hole” in the public finances, setting a pessimistic tone for the budget, which will be announced on 30th October.
As a result, It is widely expected the Chancellor, Rachel Reeves, will raise taxes on businesses in one form or another, having previously ruled out increases to income tax, employee national insurance and VAT.
A number of news reports from the last week indicate that Reeves is considering raising employer’s national insurance. While an increase could place more stress on small businesses with employees, it may also help to drive greater engagement of off-payroll workers, says Dave Chaplin, founder of Contractor Calculator and IR35 Shield.
Flexible workers could unlock “significant” savings
Speaking to the Financial Times, Chaplin suggested that increasing employer’s NI could encourage “more firms” to engage contractors.
“While contractor day rates may appear higher than equivalent permanent staff costs, the long-term savings are significant”, Chaplin said. “There’s no ongoing salary commitment once a project ends, no pension contributions, and crucially, no employers’ NI to worry about”, he added.
As a result, Chaplin says, businesses can hire “talent on tap, on an as-needs basis” giving these organisations greater “flexibility and cost control” – something Chaplin labelled “a win-win situation”.
Other commentators – including IPSE – have questioned whether the move would be as beneficial for the self-employed, and have raised concerns over the impact of an increase on small businesses with employees.
Umbrella workers may pay the price for NI increase
Added to this, IPSE has suggested that “the picture could actually worsen” for some independent workers if employers’ national insurance were to increase – particularly for contractors and flexible workers operating via umbrella companies, whose numbers have increased exponentially since the introduction of IR35 reform.
Citing its own research from 2021, IPSE found employers’ national insurance was being deducted from the day rate of almost 75% of umbrella contractors, rather than the umbrella company covering the cost as part of its fees.
IPSE suspects that many contractors are “still vulnerable” to changes to employer’s NI, which will likely “be passed immediately onto umbrella contractors, with no guarantee that their client will agree to an increased day rate to compensate the difference”.
However, there will be no certainty over the measures to be included in the Autumn Statement until it is revealed next week.
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