Freelance tech sector unmoved by Autumn Statement 2023, despite AI, Life Science and innovation boosters

The chancellor handing millions more to Artificial Intelligence, Life Sciences and UK innovation could lift IT freelancers dejected that their Autumn Statement wishes got ignored.

There was no proposed date yesterday for the regulation of umbrella companies – which temporary techies often have to use – and there was no repeal of much-disliked IR35 reform.

But Jeremy Hunt’s second ever Autumn Statement does shore up take-home pay; for employees (Class 1 NIC falls by 2% from Jan 6th), and sole traders (Class 2 axed, Class 4 cut by 1%).

‘Game-changing’

Despite the numbers sounding small, Terry Payne, managing director of the temporary staffing app hubbul, says the National Insurance tweaks could boost the labour market.

“[Both represent] good news for many flexible workers. The abolition of Class 2 and cut to Class 4 NI is potentially game-changing for sole traders and those with side-hustles.

“As is the drop in employee NI,” continued Mr Payne, “which could help many people make ends meet.”

‘Saving of £450-£750 a year for umbrella contractors’

DNS Associates, an accountancy firm, told Free-Work that all employees including umbrella contractors, will benefit from the drop, with “an extra £450 in their pockets annually.”

Another accountant, SG Accounting, calculated the drop’s value to be even higher, saying yesterday that umbrella staff on over £50,000 can expect a tax saving of around £750 a year.

But with a specific techie in mind, My Digital CEO John Whelan is less enthused about the headline rate of Employee National Insurance falling from its current rate of 12% to 10%.

“Tinkering with tax rates outside a normal tax year is very expensive for payroll software developers,” reflected Whelan. “It [disrespects]…an industry which is a loyal servant of UK plc.”

‘New Year present’

Software developers won’t be the only onlookers of Autumn Statement 2023 disappointed at the HMRC reprieve for 26 million Britons, according to tax firm Brookson.

“The reduction in [Class 1 NICs] will flow straight down to [umbrella contractors’] take-home pay and increase it, making it a nice New Year’s present for many.  

“[But] this won’t be the case for the majority of contractors working via a limited company,” says the firm’s Matt Fryer.

“They typically pay themselves a salary below the employees’ NI threshold.

“It is a shame that limited company contractors, who are a critical part of the workforce have once again been excluded from a tax break aimed at stimulating the workforce.”

‘Limited company workers will feel disappointed, again’

Yet a tax lawyer, Rebecca Seeley Harris suggests that unfortunately such workers are probably, by now, getting used to being overlooked by the government. 

“The Autumn Statement will – again -- disappoint those in the contracting sector,” began ReLegal Consulting’s founder.

“The only good news [for PSCs] is that the IR35 offset has been announced for the calculation of PAYE liability in cases of non-compliance of the Off-Payroll Working rules.”

‘Obvious unfairness’

Seeley Harris added: “This was an obvious unfairness in the tax system resulting in double taxation.

“This is good news for [contractors’] clients that they can now offset those amounts already paid by the contractor, including corporation tax.”

The tax lawyer cautioned that this new ‘good news’ of an offset mechanism (effective from April 6th 2024), is only going to apply where HMRC has proven that the OPW rules are in play.

“[So my] message here [to end-clients] is make sure you’ve taken reasonable care, and put in a robust system to assess your contractors’ employment status under either IR35 or OPW.”

‘IR35 offset is Autumn Statement’s key-takeaway’

More positively, by being able to account for tax already paid, a change of tack from clients who insisted contractors joined the payroll, due to OPW, could now ensue, says Qdos.

“[That] the so-called ‘double taxation’ of IR35 will be resolved…[is] perhaps the key takeaway for contractors and the businesses engaging [them] from Autumn Statement,” says Qdos CEO Seb Maley.

Even the fact that confirmation of the set-off mechanism was yesterday expected by the chancellor, doesn’t detract from how welcome it is, says status advisory Markel.

‘Positive’

The advisory’s Danny Batey told Free-Work: “As anticipated, the government has committed to introducing an off-set mechanism that would allow deemed employers the ability to offset tax and NIC already paid by a PSC against their liability which has been assessed by HMRC.

“This is positive news that will hopefully encourage more clients to engage with Personal Service Companies (PSCs) moving forward.” 

Yet just one technical measure on IR35 being the only big positive for tiny companies doesn’t add up to what the government was suggested it should do at Autumn Statement, by the new owner of the platform formerly known as Twitter.

‘There should be a bias towards supporting small companies’

“Most people will have heard about Rishi Sunak’s interview of [X CEO] Elon Musk, which took place at Bletchley Park after the AI Security Summit earlier this month,” began accountant Stephen Gibbens in a post.

“The part that I found most interesting was Elon’s comment that, ‘There should be a bias towards supporting small companies because they are the ones that really need nurturing.

“‘The larger companies really don’t need nurturing. You can think of it as a garden — if it’s a little sprout it needs nurturing, if it’s a mighty oak it does not need quite as much.’”  

‘Killing off little sprouts’

An adviser to tech firms, Gibbens asked in his pre-AS LinkedIn post whether the UK was “in danger of killing off our little sprouts,” amid rumoured, adverse changes to R&D tax credit incentives.

Yesterday, Mr Hunt largely confirmed what Gibbens suggested he didn’t want to happen – that the ‘mighty oak’ would take priority in the government’s eyes.

At chapter 4.20 of his Big Green Book, the chancellor says: “The current R&D Expenditure Credit and SME schemes will be merged from April 2024 onwards, simplifying the system”.

‘Simplify and improve MTD for income tax system’

A separate simplification initiative contained in Autumn Statement is likely to go down much better, however.

In fact, following the Low Incomes Tax Reform Group saying it wants the government to clarify its stance on Making Tax Digital for income tax, chapter 5.55 of the AS states:

“The government is announcing the outcome of the review into the impact of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) on small businesses.

“This includes maintaining the current MTD threshold at £30,000 and design changes to simplify and improve the system. These changes will take effect from April 2026. 

“The government is also legislating in the Autumn Finance Bill 2023 to ensure taxpayers, who join MTD from 6 April 2024, are subject to the government’s new, fairer penalty regime for the late filing of tax returns and late payment of tax.”

‘Full expensing is the single most transformational thing I could do for business'

Appearing to tower above the MTD update is what Mr Hunt yesterday trumpeted as “the largest business tax cut in modern British history.”

The chancellor explained in his House of Commons speech: “The CBI, Make UK, Energy UK and 200 other business leaders from companies including BT Open Reach, Siemens and Bosch have said making this measure [-- full expensing --] permanent would be the ‘single most transformational’ thing I could do for business investment and growth.”

Under ‘full expensing,’ qualifying companies can write off the full cost of qualifying plant and machinery investments (but unincorporated businesses are ineligible).

‘Pointless’

“The problem is that, for essentially bureaucratic reasons, full expensing was introduced as a temporary three-year measure,” explains Tax Policy Associates, which called for the measure to be made permanent.

“[Before this decision to make it permanent] it only [had] two-and-a-half years left. This renders it pointless – no business is going to base its long term investment planning on a relief which will disappear by the time spades hit the ground.”

To further support the large organisations which IT freelancers and tech contractors supply, Autumn Statement pours in an extra £500m over two years to help make the UK “an AI powerhouse.”

‘AI Safety Institute’

There will also be the first ever “AI Safety Institute,” backed by an initial £100 million investment.

In addition, £5 million will go to Imperial College and Imperial College Healthcare NHS Trust, to set up a Fleming Centre to inspire the “next generation of world-changing innovations.”

The chancellor also confirmed the sign-off of £4.5 billion of support over five years to 2030 to attract investment into “strategic manufacturing sectors.”

And the government used Autumn Statement to say it will provide £520 million in funding from 2025-26 to support transformational manufacturing investments in the life sciences industry.

‘No surprise’

But the boss of an accountancy firm serving freelancers, which also offers umbrella services to IT contractors, Louise Rayner, came across as unmoved by Mr Hunt’s offerings.

“No surprise -- investment in tech businesses, as expected,” Rayner, CEO at NumberMill told Free-Work.

“But maybe it’s understandable, as the approach by Hunt is long-term and aims to reduce inflation, cut debt, cut taxes,  and encourage growth. The latter includes funding for apprentices in engineering and other key growth sectors.”

‘UK attractiveness’

The chancellor’s slow but steady stance was actually foreshadowed at the CBI conference earlier this month, when his address was heard by delegates, including Robert Bosch UK managing director Vonjy Rajakoba.

“The chancellor…outlined why the UK is an attractive place for investment, and suggested that the Autumn Statement will encompass measures that will further strengthen that attractiveness,” reflected Rajakoba. 

But among tech contractors’ advisers last night, ‘attractive’ doesn’t come close to how Mr Hunt’s measures are being seen.

‘Inadequate’

Mike Parkes, tax director at Go Simple Tax explained in a statement sent to Free-Work:

“While [the chancellor’s] changes [to National Insurance] were hailed as a simplification of the tax system, in truth there’s much more to be done to encourage entrepreneurship and make self-employment -- and the host of risks and challenges it entails -- appeal to the next generation of business owners.” 

Trying hard not to give a similarly downbeat assessment of yesterday’s Autumn Statement 2023 for tech freelancers, was DNS Associates’ tax director Sid Agarwal.

“There were lots of positive sounds in the statement and speech, but are the chancellor’s announcements really sufficient to truly support IT contractors? Unfortunately probably not,” Mr Agarwal told Free-Work. “There was no [tangible help with] the big issues affecting contractors, and so these issues will continue to create challenges for contractors in the UK.”