Autumn Budget 2024: What Contractors and SMEs need to know

On October 30th, 2024, Chancellor Rachel Reeves announced her Autumn Budget, setting out a path for a "decade of national renewal." Since then, we’ve been closely analysing the details to pinpoint exactly what contractors need to know. With a significant array of changes—from increased National Insurance costs to tightened regulations on umbrella companies—the budget holds important implications that contractors and SMEs will want to consider.

Andy Vessey, Head of Tax at Kingsbridge, comments:

“With any budget, especially one as comprehensive as this, it’s crucial to sift through the specifics and understand the fine print. Contractors and SMEs need more than a summary—they need a clear picture of what these changes mean for them and how they can adapt.”

Below, we break down the key points, from NIC hikes to the expanded compliance efforts by HMRC, so contractors can be prepared for what lies ahead.

Key changes to National Insurance and umbrella company regulations

The Budget’s adjustments to National Insurance (NI) and regulations for umbrella companies have raised significant concerns for both contractors and the businesses that engage them.

• Employers’ NIC increase: Starting April 6, 2025, the employers’ NIC rate will rise by 1.2% to 15%, accompanied by a reduced NIC threshold from ￡9,100 to ￡5,000. This adjustment is expected to place added strain on businesses, particularly SMEs, which Reeves described as the "backbone of the UK economy." Higher NIC expenses could limit hiring capacity and pressure wages across sectors.
• Shift in the contractor landscape: With these changes, many contractors may find Personal Service Companies (PSCs) a more viable option than umbrella companies due to PSCs’ lower administrative burden and tax flexibility. Companies facing rising NI and umbrella compliance costs may turn to PSCs as an alternative to managing complex umbrella structures, creating a potential uptick in PSC demand.

Increased HMRC enforcement and new umbrella company legislation

The Budget also earmarks resources for HMRC to bolster its compliance efforts in labour supply chains, including umbrella companies - potentially raising scrutiny on contractors' tax arrangements.

• Recruitment agency responsibilities: Beginning April 2026, recruitment agencies will be accountable for PAYE on payments made to workers in umbrella arrangements. If no agency is involved, the responsibility falls to the end client. This legislative shift aims to protect contractors from unexpected tax liabilities caused by non-compliant umbrella practices.
• Expansion of HMRC compliance staff: An additional 5,000 HMRC compliance officers will be recruited to intensify enforcement, particularly for OPR (Off-Payroll Rules) and IR35 compliance, signalling potentially increased vigilance over contractor tax practices.

Corporation tax and Capital Gains tax (CGT) adjustments

While the 25% corporation tax rate remains unchanged, other corporate taxation adjustments suggest further tightening on business tax practices.

• Capital Gains tax: From October 30, 2024, CGT rates will increase from 10% to 18% (lower rate) and from 20% to 24% (higher rate). For contractors and entrepreneurs, these hikes mean a more significant tax burden when selling or winding down businesses. Business Asset Disposal Relief and Investors Relief will see rate increases to 14% by April 2025 and align with the main lower CGT rate of 18% by April 2026, potentially impacting those planning an exit from their businesses.

Employment Allowance increase and skills development support

Some relief is offered for smaller businesses through a doubled Employment Allowance, which will increase from ￡5,000 to ￡10,500 from April 6, 2025. This change may help limited company contractors who qualify reduce their NIC liabilities, though larger firms may not see similar benefits.

• Support for skills development: In line with the Budget’s emphasis on upskilling, Labour has proposed initiatives to support ongoing professional training, particularly in high-demand sectors like IT and engineering. This development could benefit contractors needing to update skills as technologies and market demands evolve.

Considerations for contractors: navigating compliance and taxation changes

The Autumn Budget 2024 indicates a mixed outlook for contractors, with some support measures balanced by tighter compliance requirements and increased tax obligations.

• NIC increases and compliance risks: The upcoming NIC rise and legislative changes around umbrella companies may push contractors to reconsider their operating structures, with PSCs emerging as a potentially advantageous model under the revised framework. However, with additional compliance resources at HMRC, contractors using PSCs or other structures should expect some increased scrutiny.
• Future corporate taxation: While corporation tax rates remain capped at 25%, Labour’s broader approach suggests potential future adjustments to dividend tax rates, which could impact high-earning contractors or PSCs, making strategic tax planning essential.

How Kingsbridge can help

If you’re a contractor or SME navigating these changes, Kingsbridge offers specialised support to meet your unique challenges, including expert guidance on IR35, compliance, and risk management and mitigation. Our team is dedicated to helping contractors understand and adapt to the evolving tax landscape while providing competitive and flexible business insurance options.

Andy Vessey, Head of Tax at Kingsbridge, sums it up:

“The Autumn Budget introduces significant challenges for contractors and small businesses, particularly with National Insurance hikes and tighter regulations for umbrella companies. Contractors will need to think about their financial strategies carefully to remain compliant while maximising their tax efficiency, including how to manage operational risks and multiple tax and accounting responsibilities.”

Kingsbridge can help you with your business insurance and IR35 status determination requirements. Our comprehensive package policies include Professional Indemnity, Public Liability and Employers’ Liability, as well as add-ons like Cyber, Personal Accident, and Director and Officer’s Liability.

To find out more,?get a quote or?contact us today.