Self-employed ‘abandoned’ as IR35 absent from Autumn Statement

The UK government’s failure to address IR35 off-payroll legislation in its Autumn Statement adds to the recent cycle of “bad news” for freelancers and contractors, market participants have said.

According to Seb Maley, CEO of IR35 specialist consultancy firm Qdos, the self-employed “have been buried in bad news recently”, with the recent budget exacerbating the issues further.  

“The Chancellor speaks about stability and growth, but has abandoned the self-employed, who are critical to ensuring both.”

As part of the UK government’s ‘Growth Plan’ outlined in September’s mini-Budget, the government had planned to reverse the 2017 and 2021 changes to the off-payroll working rules (IR35) to simplify the UK tax system. 

But in a surprise economic statement in October, newly appointed chancellor Jeremy Hunt announced a U-turn on the decision. 

Backtracking on the repeal means that calls for a review of the IR35 regime are “only going to grow louder”, and Hunt’s first bona fide budget statement was an opportunity to enact this, Maley said. 

“At the very least, the government must address the fundamental flaws which continue to plague the IR35 rules and see thousands of contractors forced into zero rights employment.” 

Dividend tax cut ‘adds insult to injury’ 

Market participants have also lamented Hunt’s decision to slash reliefs on dividend taxes, with allowances set to be cut from £2,000 to £1,000 in 2023, and a further £500 reduction to follow in 2024. 

Freelancers operating through their own limited company, who typically take a small salary and receive the rest of their income through dividend payouts, will be directly impacted by this. 

According to Matt Fryer, managing director of compliance and services platform Brookson Group, this is a “short-sighted” move which stands to disincentivise the flexible workforce. 

“Some may decide to seek permanent employment as a result of this budget, but contracting is not just about the money; it is a flexible lifestyle choice,” he said. 

Fryer went on to argue that, due to the inaction of government, it may fall to employers to support the freelancer community. 

“If the government is not going to incentivise the flexible workforce, businesses need to consider what else they can do to continue to make contracting an attractive option,” he said.  

“This might include access to improved services or benefits, in compliance with the off-payroll working rules.” 

 Similarly, Maley argued that slashing the dividend tax threshold “adds insult to injury”, highlighting the inherent vulnerability of small businesses and contractors. 

“The government works on the basis that small businesses have pockets as deep as big businesses and can absorb these freezes and tax hikes. The reality is, many can’t,” he said. “If the Chancellor thinks he’s put the issue of IR35 to bed, he’s mistaken.” 

Living wage increase – the hidden danger 

Another measure announced by Hunt, seemingly unrelated to freelancers and the IR35 regime, was the £0.92p increase to the National Living Wage from April 2023.  

But according to Julia Kermode, founder of freelancer support platform IWORK, the move “leaves many of those already struggling to make ends meet in an even more perilous position”. 

“Many small businesses owned by self-employed people simply can’t afford the minimum wage increase,” she said. 

“They often don’t pay themselves any sort of wage and, alongside rising energy bills and inflation, this additional staff cost could mean the end for them.” 

Also of concern, according to the Low-Income Taxes Reform Group (LITRG), is that the wage increase will drive some employers to turn to the ‘false self-employment’ of workers. 

An individual is deemed an employee if their working practices are significantly controlled by an employer, such as the days and hours they are allowed to work. The individual is then entitled to rights such as a notice period, holiday pay, and redundancy pay. 

However, it is thought that some businesses circumvent these laws by registering the individual ‘self-employed’. This is referred to as ‘false self-employment’ and allows the client to avoid paying for benefits and National Insurance contributions. 

“Some employers will have already been contending with difficult trading conditions and increasing costs and may struggle to absorb any further large increases at this time,” said Meredith McCammond, technical officer at the LITRG. 

“As such, we are concerned we will see more ‘false self-employment’ in coming years, the effects of which can be detrimental and far reaching.”