New chancellor Kwasi Kwarteng has delivered the mini-budget (Friday, 23rd September). With the UK’s economy facing unprecedented challenges and the word “recession” being commonly used, the mini-budget lays out the government’s plans to boost the economy, protect families and help the UK power through these challenging times. This article summarises the critical pieces of information unveiled in the September mini-budget.
The 1.25% National Insurance increase to boost health and social care funds is to be reversed in November
Announced yesterday (Thursday, 22nd September) in the House of Commons by Kwasi Kwarteng, the new Chancellor of the Exchequer, the 1.25% increase in National Insurance to help fund health and social care that ex-chancellor Rishi Sunak first mentioned in April is to be reversed from 6th November. This will help employees earning over £12,570 per year and will help them retain more of their take-home pay.
According to a government figure, workers (including umbrella employees) can expect to save the following:
- Annual salary of £20,000 – £93 per year.
- Annual salary of £30,000 – £218 per year.
- Annual salary of £50,000 – £468 per year.
- Annual salary of £80,000 – £843 per year.
- Annual salary of £100,000 – £1,093 per year.
The key announcements in Friday’s mini-budget
Below are all the most important announcements in chancellors Kwasi Kwarteng’s mini-budget, delivered on Friday, 23rd September.
IR35 (off-payroll working rules)
IR35 has caused plenty of issues for businesses, agencies and workers operating through an intermediary (PSC). With IR35 reforms (off-payroll working rules) rolled out in the public sector (2017) and private sector (2021), it became the responsibility of the end-hirer to determine the IR35 status of each PSC contractor. It has caused numerous issues for organisations, and contractors have suffered as a consequence.
From April 2023, the original IR35 rules will apply, making it the worker’s responsibility to determine their IR35 status – taking this burden away from end hirers.
Chancellor Kwasi Kwarteng said:
“To achieve a simpler system, I will start by removing unnecessary costs for business. We can also simplify the IR35 rules and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.
“So as promised, by the prime minister, we will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.”
This news is going to be received exceptionally well by limited company contractors and businesses that hire temporary workers.
Read our blog: Government To Repeal IR35 Tax Rules – Astonishing News For Contractors, Freelancers And UK-Based Businesses.
Income tax
- There will be an income tax cut, commencing in April 2023.
- As things stand, the income tax rate on earnings between £12,571 to £50,270 is 20% but this will be reduced to 19%.
- Workers will see a boost in their net salary.
- The higher rate of tax which applies to salaries over £150,000 (45%) is going to be scrapped.
- There will be just one higher rate of pay of 40%, which will apply to salaries exceeding £100,000.
National Insurance
- As we have already reported, the 1.25% increase in National Insurance (introduced by Rishi Sunak in April 2022) is going to be reversed – excellent news for employees and temporary workers using umbrella companies for payroll.
- The increase was to raise funds for health and social care. The government will find alternative routes to source this.
Corporation tax
- From April 2023, there was a scheduled increase in corporation tax from 19% to 25%. However, reported in the mini-budget, this proposed rise has been cancelled.
- Businesses, as a result, will pay less tax.
Universal Credit and benefits
- The government is going to make it more difficult for people to claim Universal Credit.
- Those claiming benefits will need to take a more thorough approach to try to find work.
- The government believe this will impact 120,000.
- If someone is deemed to not be trying hard enough to find work, they could have their benefits reduced.
Stamp duty
- No surprise that stamp duty has been mentioned in this mini-budget because it often pops up in government financial plans.
- There is going to be a cut in stamp duty.
- No stamp duty will apply to the first £250,000 of a property purchase.
- First-time buyers will not have to pay stamp duty on the purchase of a house up to £425,000.
- The government believe this will help 200,000 people avoid stamp duty all together.
Energy
- The country is facing an energy price crisis.
- The government is issuing an energy package which will be worth up to £60 billion (for six months, starting October).
- From 1st October, the annual energy price cap per household will be £2,500.
Other
- People visiting from abroad will benefit from VAT-free shopping.
- There were rules in place that capped the bonuses that bankers could earn. However, these are to be scrapped. Instead, regulations are going to be introduced later in the year.
- Alcohol duty increases are to be scrapped – popular news for many!
Thank you to the BBC for posting regular updates on the mini-budget.
The government will not be publishing an OBR assessment with the September mini-budget
Traditionally, the government will make two annual announcements explaining tax and spending plans – the Spring Statement and the Autumn Budget. To support these two announcements, the Office for Budget Responsibility (OBR) will release an analysis of the statements. Still, they will not do this for the September mini-budget – despite a group of MPs on the Treasury Select Committee contacting the chancellor and requesting an OBR forecast. A Treasury representative responded by saying:
“Given the exceptional circumstances our country faces, we have moved at immense speed to provide significant energy bill support for households and businesses, and are acting swiftly to set out further plans to kickstart economic growth later this week.
“We remain committed to maintaining the usual two forecasts in this fiscal year, as is required.”
An official, full-length budget (not another mini-budget) is still expected to be announced before the end of the year. However, a date has not been confirmed.
How will the mini-budget impact contractors and freelancers?
A boost in take-home pay for umbrella company employees
From 6th November, Employer’s National Insurance and Employee’s National Insurance Contributions will decrease. As a result, the reversal of the 1.25% National Insurance hike to raise health and social care funds will help umbrella employees retain slightly more take-home pay. As umbrella employees are responsible for employee and employer NI contributions*, an overall 2.5% reduction (depending on individual earnings) will boost net salaries.
IR35 reforms will be received very well by contractors and end-hirers
As mentioned above, the IR35 repeal (off-payroll working rules) will be received well by the entire supply chain of temporary workers. Contractors with a PSC will be allowed to determine their IR35 statuses from April 2023 – the way the legislation operated before the public and private sector reforms (2017 and 2021).
Hopefully, this will boost contractors using limited company intermediaries, and more organisations will seek contractors to work on temporary assignments. After all, the off-payroll reforms put a huge burden on organisations that had to change their operating procedures to accommodate IR35 checks for every temporary worker. From April 2023, this burden will be lifted, and businesses will be free to hire limited company contractors without worrying about the consequences of inaccurate IR35 assessments.
How have key figures responded to Friday’s mini-budget?
It’s always interesting to see how stakeholders have responded to an important government announcement. Below are some replies to the mini-budget that you may find interesting.
Rachel Reeves – Labour’s shadow chancellor
Labour’s shadow chancellor, Rachel Reeves, described the mini-budget as a “comprehensive demolition” of the conservative government’s last 12 years. She said:
“The costs of the energy price cap will be funded by borrowing, leaving eye watering windfall profits of the energy giant untaxed. [Continues] Working people are left to pick up the bill.
“Borrowing higher than it needs to be, just as interest rates rise. And yet the chancellor refuses to allow independent economic forecasts to be published, which would show the impact of this borrowing on our public finances, on growth, and on inflation. It is a budget without figures, a menu without prices.
What has the chancellor got to hide?”
Dave Chaplin – CEO at ContractorCalculator
Dave Chaplin has long campaigned against the IR35 changes. In an article posted on ContractorCalculator, Dave has shared his thoughts on the IR35 repeal.
“Today, contractors and businesses will be celebrating as Liz Truss and her government have not only kept to their promise but gone further and repealed a legislation that has had a damaging effect on business and contractors’ livelihoods for the past five years.
These onerous reforms were never going to work and were flawed from the start. The recent Court of Appeal Atholl House case further highlighted the structural deficiencies of the legislation.
The new version of IR35 has simply served to pour glue on the economy and prevent growth. The Chancellor has done the right thing and removed an unnecessary burden for firms of trying to solve a complex riddle every time they hire a worker. Today’s bold move by Kwasi Kwarteng may well have given the Conservatives a chance of winning the next general election.
The Stop The Off-payroll Campaign I personally ran for four years spelt out the punitive effect that the legislation would have and it came to pass. My final word to the government on the matter is ‘I told you so – and finally you listened.’“
Seb Maley – CEO at Qdos
In an article on Contractor UK, CEO at Qdos Seb Maley shared his views on the Ir35 repeal. He said:
“The fiscal changes announced today are likely to go down as some of the most pro-contracting in memory.
Repealing IR35 reform is a huge victory for contractors. The changes have created havoc for hundreds of thousands of independent workers, along with the businesses that engage them.
The government mustn’t waste time, though. The last thing contractors and businesses impacted by IR35 need is uncertainty. A clear and robust roadmap for reversing IR35 reform in both the public and private sectors is needed.”
Crawford Temple – CEO at Professional Passport
Contractor UK has also caught up with Crawford Temple, CEO at Profesional Passport. He shared his thoughts:
“Today’s announcement by the chancellor is welcome — the off-payroll legislation has given rise to a proliferation of disguised remuneration schemes that have had a punishing impact on contractors. However, it is imperative that this latest move doesn’t compromise on compliance.”
Chris Bryce – CEO at the Freelancer and Contractor Services Association (FCSA)
CEO at the FCSA, Chris Bryce, shared some words with Contractor UK. He said:
“We’re [The FCSA] delighted to see the misguided reforms of IR35 will be repealed as of 6th April 2023.
Of course, many will say that Kwasi Kwarteng should have gone further and repealed IR35 in its entirety! No doubt many contractors will also be pleased”.
Kate Cottrell – Founder of Bauer and Cottrell and IR35 status specialist
Speaking to Contractor UK, Kate Cottrell, founder at Bauer and Cottrell, couldn’t hold back her delight about the IR35 repeal announcement. She said:
“Woo-hoo and yippee!
This is the best news for contractors, agencies, end clients and consultancies!
There was no way whatsoever that Ms Truss’s promised review of IR35 with further tinkering was ever going to unravel the complete mess that Chapter 10 created.
Repeal may also have a silver lining as it will sort out the few unscrupulous umbrella companies and the numerous avoidance schemes that have emerged since 2017.
Repeal also neatly deals with the embarrassment of the public sector ‘owing’ millions of pounds to HMRC for using CEST incorrectly.
Repeal further takes away the very big headache for HMRC of being unable to actually collect the correct amount of tax and NICs. And HMRC’s tool CEST will of course need a revamp – at the very least. Common sense has prevailed and long may it continue.”
Top 10 umbrella companies
Our website is dedicated to providing helpful information for the UK’s temporary workforce. If you are looking for an umbrella – either as a first-time contractor or you want to switch from your current provider – we can help. We’ve collated a list of our top 10 umbrella companies, and they’re all accredited by the Freelancer and Contractor Services Association (FCSA) or Professional Passport. And, some have special offers at the moment that you won’t want to miss!
* Employer’s National Insurance Contributions are considered employment costs, meaning they should be taken into consideration by end-clients/agencies when offering umbrella employees the assignment rate (an uplifted rate to cover the employment costs – compared to traditional PAYE for workers in a permanent role).
