Autumn Budget 21: Overview for contractors

Overall, there was little positivity in the Autumn Budget for contractors and self-employed workers. In this post, we look at the key areas in the budget that contractors need to know about.

No detail on funding for umbrella regulation in the Autumn Budget

There were some genuine signs leading up to the Budget that the government was taking the matter of tax avoidance in the umbrella market seriously.

However, the released Budget documentation only goes as far to say that it will claim down on tax avoidance – with no mention that a Single Enforcement Body will be funded. In order for the umbrella regulation we have proposed and discussed with BEIS to go ahead, funding needs to happen.

A sign of hope is that a new inquiry into off-payroll rules in the private sector will take place next month. As such we will do what we can to seek clarity and work with BEIS on implementation. We will be submitting evidence to the inquiry regarding the unintended consequences of off-payroll working and the horrors umbrella workers’ and contractors providing contingent skills are being subjected to.

Employment and tax status expert, Rebecca Seeley Harris, said: “I am hugely disappointed if the government has not seen fit to give funding to this much needed enforcement body. Without this funding, umbrella company workers will continue without any official protection in an unregulated market.”

inniAccounts CEO and founder of OffPayroll.org.uk, James Poyser, said: “We knew it would take time for policy to come to fruition, even if the SEB got funding today, which is why we set up FairScore as a stop-gap. It’s already attracted a lot of attention and we are confident it can flush out the perpetrators of tax avoidance and unethical practice. 
“We actively encourage umbrellas to come forward and get a FairScore rating so everyone in the labour supply chain can make an informed decision about which umbrellas they should be dealing with.”

Dividend tax rates

As previously announced, the dividend tax rate will increase by 1.25% on 6 April 2022 in the UK.

  • 8.75% for the dividend ordinary rate
  • 33.75% for the dividend upper rate
  • 39.35% for the dividend additional rate and dividend trust rate

National Living Wage 

If you employ people through your contracting business, changes to the National Living Wage and National Minimum Wage could impact you. 

The government will increase the National Living Wage for individuals aged 23 and over by 6.6% from £8.91 to £9.50 an hour effective from 1 April 2022. 

For workers under 23, the National Minimum Wage will increase by:

  • 9.8% from £8.36 to £9.18 per hour for 21 to 22 year olds
  • 4.1% from £6.56 to £6.83 per hour for 18 to 20 year olds
  • 4.1% from £4.62 to £4.81 per hour for 16 to 17 year olds
  • 11.9% from £4.30 to £4.81 per hour for apprentices

There was no change to rates for under 18 year olds, who are currently entitled to £4.62 per hour and 18 to 20-year-olds who receive £6.56 per hour.

National Insurance

As announced in September, the new Health and Social Care levy on National Insurance will go ahead to fund investment in the NHS and social care from April 2022.

  • The Levy will apply UK wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self Employed) National Insurance contributions (NICs), and to the main and additional rates. The Levy will not apply to Class 2 NICs or Class 3 NICs. 
  • The Levy will be effectively introduced from April 2022, when NICs for working age employees, self-employed people and employers will increase by 1.25% and be added to the existing NHS allocation. 
  • From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age, and NICs rates will return to their 2021-22 levels.

Ultimately, contractors employed by umbrella companies will see a 2.5% increase in tax under this levy, as most umbrella company workers end up paying both the employers and employees NICs rises so they will be taxed twice. 

This is obviously unfair and another blow to workers who are already in a precarious position. As always, we urge umbrella workers to check their payslips and review their umbrella companies, clients and agents at OffPayroll.org.uk.

Contractors, consultants and freelancers can use OffPayroll.org.uk and the FairScore umbrella rating to:

  • Find outside IR35 contracts
  • Find fairer end clients
  • Find fairer umbrella companies