Key changes outlined in the Autumn Statement reduce IR35 risk for businesses
This year’s Autumn Statement included a few amendments that contractors, freelancers and businesses that hire self-employed workers should be aware of. The stand-out changes highlighted in this article include a reduction in National Insurance Contributions (NICs) for self-employed workers and yet another amendment to the controversial IR35 ‘off-payroll’ rules.
IR35 offset
The latest changes to IR35 rules will allow HMRC to offset tax and NICs that have already been paid by a contractor’s Personal Services Company (PSC), if the contractor is deemed to be operating inside IR35. Under previous rules the PSC’s contributions weren’t taken into account, which meant that ‘double-taxation’ was likely to occur with both the fee-paying business and the PSC liable to pay the full tax bill.
| Aspect | Employee | Independent Contractor |
|---|---|---|
| Control and supervision | Direct control over how, when, and where to work | Freedom to set their own schedules and methods |
| Payment | Regular wages; taxes withheld by employer | Paid per project; responsible for their own taxes |
| Benefits | Health insurance, retirment plans, paid leave | Must arrange their own benefits |
| Termination | Often requires notice and may include severance | Can usually be terminated at any time without benefits |
| Tools and equipment | Provided by the employer | Typically use their own tools |
Changes to NICs for self-employed workers
While many businesses will be reviewing their policy on engaging with PSCs, the biggest change for self-employed workers was to how contractors and freelancers pay NICs.
Class 2 NICs axed for those with profits above £12,570
Some two million self-employed people with profits above £12,570 will benefit from the axing of Class 2 national insurance. While nobody in this group will be required to make Class 2 payments, they will still receive access to contributory benefits, like the State Pension.
Changes to Class 2 NICs for those with profits below £12,570
Those with profits between £6,725 and £12,570 won’t have to contribute but will receive a National Insurance credit, and those with profits below this will continue to be able to make voluntary contributions in order to receive the benefits.
1% reduction in Class 4 NICs
Chancellor Jeremy Hunt also announced a cut to class 4 national insurance from 9% to 8%, which he said will result in an average saving of around £350 a year. Both of these changes will take effect from 6 April 2024.
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