What last week's autumn statement means for small businesses and the self employed

Given that this is likely to be the last mini-budget before the upcoming general election, particular interest was being paid by UK small businesses and the self-employed as the government announced a slew of tax and spending changes along with major changes to National Insurance.

Following last week’s news that inflation has fallen to 4.6% in the year to October, down from 6.7% for the previous month, coupled with encouragement from MPs, has resulted in the chancellor announcing further cuts in today’s Autumn statement. 

So what does this mean for small businesses and the self-employed and how will the budget affect them? I’ve broken down some of the key takeaways from the budget below.

National Insurance

One of the bigger announcements to come out in the Autumn Statement is the government’s plans to cut National Insurance rates for self-employed and employed workers.

National Insurance for self-employed individuals will be slashed. Those self-employed workers who currently pay Class 2 rates at £3.45 a week will be scrapped and the Class 4 rate will drop from 9% to 8% from April. With self-

employed workers paying Class 4 on annual earnings between £12,500 and £50,270, Jeremy Hunt has announced that the self-employed taxpayer will save £350 per year.

Additionally, from January, workers will see the Class 1 Insurance rate cut from 12% down to 10%. Class 1 is paid by employees on annual earnings between £12,500 - £50,270, which means employees who are earning £50,270 and above will save £754.

However the shadow of “fiscal drag” still looms. Although the cuts are a welcome change, the thresholds at which workers are paying National Insurance and Income Tax have remained frozen since 2022 and is likely to remain so until April 2028. Because of the impact of inflation and wage growth, people are finding themselves placed in higher tax bands. Although inflation rate has fallen, the impact that this has had on livelihoods will most likely continue to be felt years into the future.

IR35 Offset Changes

For many contractors, the controversial IR35 off-payroll working rules have had a major impact on their ability to accept contract assignments and have complicated the hiring process for end clients throughout the UK. According to a survey by IPSE one in 10 contractors are “currently out of work as a direct result of IR35 reforms” and damningly, more than half of contractors surveyed have walked away from opportunities that were deemed inside IR35 over the last 12 months.

In Wednesday’s statement, Hunt promised to get rid of the “double-taxation” due to the IR35 off-payroll rules by introducing an off-set provision that will come into effect on 6th April 2024, and will apply to any liabilities assessed dating back to 6th April 2017. Double taxation occurs in the event of an incorrect IR35 status determination following a successful HMRC challenge.

The consequence of this action is that HMRC tries to recover any tax and NIC liability in full from the fee-paying party and disregards any taxes already paid for by the contractor, resulting in HMRC collecting more revenue by effectively taxing the same income twice. This announcement is welcome news to agencies and end clients who may now feel more comfortable working with contractors on an outside IR35 basis, as the tax bill for any erroneous determinations will be smaller.

New Business Rates Support Measures

In his statement, Hunt also announced a package of support worth £4.3 billion over the coming five years to support small businesses and the high street. Given the recent struggles high street shops have had since the pandemic, this will be a welcome boost to the high street economy, especially for small businesses looking to break through.

To break it down, small business multipliers will be frozen at 49.9p, the standard multiplier will be uprated in April by September’s CPI figure (6.7%), which will increase the multiplier from 51.2p to 54.6p. According to the Gov.uk website, “the 2024/25 Retail, Hospitality and Leisure (RHL) scheme will be extended for a fifth year going into 2024/25 whilst still maintaining the existing scope and providing eligible properties with 75% relief, up to a cap of £110,000 per business”.

The Issue of Late Payments

The statement also highlighted the issue of late payments for businesses, with the government announcing plans to introducing a condition that is due to come into force in April 2024 which will require any company bidding for large government contracts to demonstrate that they pay their own invoices within an average of 55 days.

Late payment practices have been a headache for business owners and the new rules will work to ease the burden that businesses owners are currently facing. The measures will also help increase the amount of working capital that small businesses can use to ensure their stability and growth into the long-term.

Looking Forward

For many contractors, freelancers and small-business owners, the ever-shifting landscape that has been the UK economy over the last five years has proven to be turbulent at best. Many are still trying to navigate their way through the continued impact that the recent pandemic and Brexit has had on their livelihoods. In some ways Wednesday’s announcement will come as a sign of relief, especially due to the cuts to National Insurance and changes around IR35. However, this will be marred by the fact that self-employed workers who experience a modest increase in income could find themselves dragged into a much higher tax bracket.

With living standards not expected to return to pre-pandemic levels until 2027 and the possibility of an upcoming election in October 2024, it’s fair to say that all eyes will be on the government to ensure that their planned changes will “help grow the British economy”, as promised by Jeremy Hunt, and provide space for smaller businesses and contractors an opportunity to thrive.