It’s fair to say that last week’s Budget from Rachel Reeves, the first from a Labour government in 14 years, has taken a fair bit of criticism from business leaders and representative groups in recent days.
Hiking Employer’s National Insurance, in particular, has caused much consternation, with businesses now more worried about the cost of taking on employees. Even the Office for Budget Responsibility cited the impact of this measure in their relatively low forecasts for growth.
Some political commentators are even speculating that this could lead to businesses turning to the flexible workforce to fill gaps that they can’t afford to plug with an employee.
Now that the dust has settled, we take a look at how the self-employed are reacting to the key announcements from last week’s Budget.
Limited company directors will be impacted by last week’s Employer NI hike. Those that pay themselves in the most tax-efficient way – typically a mixture of dividends and salary – may need to alter this mixture to account for the decrease in the secondary threshold (from £9,100 to £5,000).
These company directors will understandably be wondering why they don’t meet this government’s definition of a ‘working person’ – a confusion we highlighted just hours before the Budget.
Whilst we didn’t get any changes to Corporation Tax or Dividend Allowance, the lack of ‘pro-business’ and ‘pro-growth’ measures will have concerned these entrepreneurs. It’s no surprise that initial findings from our latest Freelancer Confidence Index show that confidence in the wider economy has plummeted since the second quarter of 2024.
There was also no attempt to woo back the thousands of company directors that have stopped working altogether since the introduction of IR35 in the private sector. If we are to see a significant upturn in the UK’s economic fortunes – as promised in Labour’s manifesto – government would surely want highly skilled contractors back into work, and fixing the flaws in IR35 would be an obvious place to start.
It's not just contractors who are feeling the impact of IR35 either. Clients are increasingly complaining about the administrative burden being placed on them and difficulties in recruiting the flexible talent that they need. The CBI, Britain’s biggest business group, has called for a radical overhaul of the IR35 rules with a ‘green card’ facility that would ‘ease pressures on businesses engaging contingent labour’.
Changes to the way that Business Asset Disposal Relief (BADR) works will also impact company directors. Whilst the lifetime limit remains at £1 million, the rate that you pay BADR will change from April 2025, becoming gradually less generous.
The verdict of sole traders was mixed and very much depended on their type of business.
For those businesses reliant on using a vehicle for work, it will come as welcome news that the freeze on fuel duty will be kept for another year along with the temporary additional 5p cut.
And for those reliant on a business premises, there was some relief announced on business rates.
All sole traders, however, will be hit by personal allowance tax thresholds remaining frozen until 2028.
Dubbed a ‘stealth tax’ by many, this measure sees taxpayers pulled into paying tax, or into paying tax at a higher rate due to the thresholds not rising in line with inflation - known as fiscal drag.
Our immediate reaction to the Budget focused on umbrella company workers and how they would be hit with a hidden cost involved in increasing Employer NI. Unless these brolly workers can negotiate a higher rate of pay with their end client, they will see their take-home pay decrease as they cover the cost of their umbrella company’s higher Employer NI bill.
Ahead of the budget, we warned of this unintended consequence in the Telegraph, arguing that it would be a breach Labour’s pre-election pledge not to increase taxes on working people.
Let’s not forget that these umbrella workers don’t want to be operating in this way, but are forced to do so because of IR35 rules. Rather than seeking to resolve this strange quasi-employment phenomenon – where these workers are treated like employees but receive no employment benefits – government has instead decided to hit these contractors with a further reduction in their take-home pay.
Umbrella workers will feel like they’ve been dealt a very bad hand after this Budget – not least because they’d rather not be in an umbrella to begin with.
Since the budget, we’ve met with the Financial Secretary and senior officials within HMRC to pass on our specific concerns with the Budget.
We’ve also attended the inaugural meeting of the Small Business Growth Forum, hosted by the Small Business Minister, where business groups and business leaders were given the opportunity to voice their concerns.
As you may expect, we used this forum to highlight the impact of the Budget on umbrella workers and the lack of measures to support and encourage entrepreneurship. We also raised the significant problem of labour market participation amongst the self-employed and the need to tackle this if the government is serious about its ‘pro-growth’ agenda.
We will, as ever, continue to press the case for the UK’s smallest businesses to this government. Whilst this Budget may have left a sour taste in the mouth for many in the sector, there will be important interventions from this government – such as on employment status or in umbrella company regulation – that we will be working with them to improve the experience of the self-employed.
Fred Hicks looks at the problem of late payment for freelancers and weighs up whether the government's new Fair Payment Code will make a meaningful impact on the ...
Nearly four in ten self-employed people have thought about giving up their entrepreneurial lifestyle just to secure a mortgage. But, with the right preparation an...
The festive season is a chance to celebrate another year of hard work, thank clients and colleagues, and relax after filing your tax returns for the last financia...