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NEWS & INSIGHTS

Predicting the Outcome of the UK Budget 2024: What Contractors Can Expect

Originally Written for Contractor UK by Chris Bryce, FCSA Chief Executive

It does seem that Budgets or “financial statements” come around far more often than they used to, so here I am again trying to predict the outcome of a Budget. Inevitably, we’ll all have a wish list of measures we’d like to see but, equally inevitably, we won’t get everything we ask for.

In the Autumn Statement, Chancellor Jeremy Hunt, delivered a few measures that brought a small measure of cheer to contractors, namely the reductions in National Insurance Contributions, especially welcome for those who are self-employed as opposed to running their own limited companies or working through an umbrella, but he didn’t go that far.

What might we see on March 6th? Well, despite some economic progress with growth slightly ahead of what was predicted and tax receipts slightly up, the Chancellor has a little room for manoeuvre but not much. Yes, it’s an election year and his party is well behind in the polls, but can Hunt really afford a “giveaway budget” which will attract voters? Much as he might like to, I’m not sure he has enough wiggle room.

Having said that, this is a pre-election Budget and both Ken Clarke and Nigel Lawson tried to sweeten the electoral pot with income tax cuts, and Hunt may choose the same headline-grabbing path with a cut in basic rate from 20% to 19% – putting more money in voters’ pockets but with a concomitant drop in tax relief on pension contributions. There’s a remote possibility that we might even see further measures on NICs, perhaps even a drop in the employers’ rate which would help stimulate economic growth.

There’s a much stronger possibility the Chancellor will have a go at Inheritance Tax. Although most people aren’t actually affected by that, it’s another front-page headline which will make voters feel good. Fuel Duty and taxes on alcohol may see the same treatment for the same reasons.

What might be even more welcome but is pretty unlikely is the lifting of the freeze on tax thresholds. First announced by Chancellor Sunak in March 2021 and extended in 2022 from April 2026 to April 2028. The additional rate threshold was also dropped from £150k to £125k. A significant raising of the higher rate tax thresholds would affect hundreds of thousands of middle-income voters such as nurses and teachers who have been dragged into the upper tax rates by stealth over the past few years and this would be a popular step with them, if not the Opposition.

One measure I’m sure many readers would like Hunt to take, is to sort out the real mess between £100k and £125k, the loss of personal allowance means an effective tax rate of 60%! It makes sense to fix this, but it’s pretty esoteric for most voters, so it’s probably not near top of Hunt’s agenda.

The short-serving PM Liz Truss and her Chancellor Kwasi Kwarteng also tried to do away with the 45% additional rate above £125k and Hunt might have another try, although the guaranteed howls of “making the rich richer” might deter him from such a move.

What measure might we see that directly concern our sector? Well, I think it’s entirely unlikely we’ll see any substantial reform of the off-payroll working rules or IR35. We’ve seen calls for reform and also outright repeal, and Truss and Kwarteng failed in their attempt so I think it’s only a slim possibility Hunt will address it.

We’re also unlikely to see much positive movement in Corporation Tax or Dividend Tax rates.

Unfortunately, I’m also pessimistic about the Budget being used as a vehicle to introduce much-needed regulation on the umbrella market. Despite many years lobbying for regulation and many responses to various government consultations, I think we’re still some way from seeing regulation. And, although tax is in part a driver for regulation of the sector, employment matters are also key, so I think simple fiscal measures wouldn’t, on their own, be enough.

Whatever happens on March 6th, there is only one thing I can absolutely guarantee: not everyone will be happy.