What the Autumn Statement means for the self-employed

In total, ‘110 measures for growth' were brought forward by the Chancellor, including widespread tax reliefs for both businesses and individuals. But what does this all mean for the self-employed?

After successive budgets and statements from this government that have very literally omitted the self-employed, it was refreshing to hear the Chancellor talk up the impressive contribution of the sector at the despatch box. However, its unlikely to quell many of the legitimate concerns of the self-employed, who will quite rightly wonder where this recognition has been in recent years.

Much of the self-employed will cite gaps in support during the pandemic and the implementation of the IR35 reforms as clear evidence that this government has not always recognised that “these are the people who literally kept our country running during the pandemic” – as Hunt referred to in Parliament yesterday.

And IPSE’s response to the Statement reflected both the welcome step of introducing tax cuts for the self-employed, but also the urgent need to go much further with support for a sector suffering from a period of stagnation.

Below, we outline how the measures announced could impact the self-employed.

National Insurance

In a major shakeup of NI, the Chancellor has announced that compulsory Class 2 National Insurance will be abolished altogether. This benefits those self-employed individuals with profits of more than £12,570, who will no longer be required to pay £3.45 a week without it affecting their entitlement to contributory benefits like the State Pension.

Along with this abolition, Class 4 National Insurance contributions – paid at 9% on profits between £12,570 and £50,270 – will be cut to 8%. It will also continue to be paid at 2% on profits over £50,270.

Taken together, this does represent a modest cut to the rate paid by many self-employed individuals. However, with the tax thresholds remaining unchanged despite inflation, the cut is unlikely to offset the fact that some self-employed taxpayers are now in a higher tax band.

Late payment

Further progress was made to move the dial on tackling the late payment of commercial invoices, an issue which routinely impacts the self-employed.

The Chancellor touched on the work of government’s Payment and Cashflow review in his speech, announcing for the first time that from April 2024, firms bidding for government contracts will have to demonstrate that they pay their own invoices within 55 days on average, ratcheting down to 45 days in 2025.

More broadly, the Cashflow review contains a range of measures called for by IPSE in its submission to the consultation. This includes beefing up the powers of the Small Business Commissioner, making it easier to research companies’ payment practices online, and even embedding payment promptness into ESG frameworks.

Whilst unlikely to deliver an immediate benefit to the self-employed, these measures mark a step along the path to changing the UK’s culture of late payment, long payment, and non-payment.

Ultimately, IPSE believes the UK can and should adopt a standard commercial payment term of 30 days, putting an end to freelancers being used by wealthy businesses as a ‘buy now, pay later’ facility.

IR35 offset mechanism

In a welcome move, the government has announced that the IR35 offset mechanism will be included in the upcoming Finance Bill and will become legislation once the bill receives Royal Assent. IPSE has worked closely with HMRC on drafting this legislation after identifying the existing flaw within the IR35 legislation.

Tougher consequences for promoters of tax avoidance

Also included in the Green Book that outlined the full list of measures being introduced was the plans to introduce tougher consequences for promoters of tax avoidance. With avoidance schemes posing an even greater risk for contractors following the IR35 reforms, IPSE welcomed the move from government to go after the source of the issue rather than the contractors themselves.

We’ve seen from the Loan Charge the devastating impact that these schemes can have, so it’s right that government is now looking to tackle this with further action on their unscrupulous promoters.

Cash basis to become the default method of calculating profits

After a brief consultation, government has now confirmed that it is bringing forward its plans to make cash basis the default method of calculating profits. Currently, the accruals method is the default method and a business has to elect to use the cash basis.

As part of the planned changes, the turnover restrictions for the cash basis method will also be removed (currently only those businesses with profits over £150,000). Instead, all self-employed businesses will be able to use the cash basis method when calculating profits.

IPSE responded to the consultation with some concern at the proposals, citing the fact that many tax agents saw no benefit in making this switch.

HMRC collecting additional data from the self-employed

The Finance Bill will also grant powers for HMRC to add new questions to the self-assessment tax return forms, with new questions requiring the self-employed to input the amount of dividends they have received in the past year, their overall shareholding within that business and also the start and end (if relevant) dates of their self-employed business.

IPSE has responded to these proposals with concern in both our written and oral evidence, with IPSE’s Joshua Toovey giving evidence to the House of Lords Finance Bill Sub-Committee earlier this week on this exact measure.

Guidance on training tax deductibility forthcoming

Also included in the Green Book was new guidance from HMRC that will shortly be issued on which training can be made tax deductible. Unfortunately, this doesn’t go as far as IPSE had called for as part of our Autumn Statement Submission to the Chancellor – namely making all training in new skills fully tax deductible.

Making Tax Digital – reviewing the £30,000 threshold

As has often been the case with MTD, the timetable for which self-employed individuals will have to comply with MTD has continually changed.

As of 2022, the government announced that all individuals with income above £50,000 will be required to comply with MTD. The following year (2027) that threshold then drops to £30,000.

The government then announced that it would review what to do with those incomes below £30,000 and above £10,000, which IPSE fed into.

The government has now announced that it is keeping the decision under review to allow HMRC to monitor experiences of MTD.