Autumn Budget 2024: key takeaways for IT contractors and the tech industry

The Autumn Budget 2024, presented by Chancellor Rachel Reeves, introduces significant measures impacting IT contractors and the broader technology sector. Here’s a breakdown of the key points that contractors and industry stakeholders should be aware of.

1. National Insurance Contributions increase

One of the most notable changes is the rise in employers' National Insurance Contributions (NICs) by 1.2 percentage points, effective from April 2025. This change is expected to raise over £40 billion in revenue. The secondary threshold for employers’ NICs will be reduced from £9,100 to £5,000, potentially increasing the cost burden on contractors working through umbrella companies.

Impact on contractors

Potential Decrease in Take-Home Pay: As the increase in NICs may not lead to corresponding fee increases from clients, many contractors could see a reduction in their net earnings.

Shift Towards Limited Companies: There may be a gradual shift back to using limited company contractors, particularly those operating outside IR35, as firms adjust their employment strategies to mitigate costs.

Impact on SMBs

This planned increase may strain small and medium-sized businesses (SMBs) financially. To navigate these challenges, SMBs will need to adopt digital tools that enhance productivity and profitability, enabling them to adapt to the changing economic landscape.

2. Capital Gains Tax adjustments

Capital Gains Tax (CGT) rates are set to increase:

• The lower rate will rise from 10% to 18%.

• The higher rate will increase from 20% to 24% from April 2025.

Considerations for tech entrepreneurs

The government’s decision to retain Business Asset Disposal Relief (BADR) offers stability for tech entrepreneurs, especially those using equity schemes like the Enterprise Management Incentive (EMI) to attract and retain talent.

While the BADR rate will gradually increase (from 10% to 14% in April 2025 and 18% in April 2026), the £1 million lifetime cap remains valuable for tech founders planning a members voluntary liquidation. This incremental change allows entrepreneurs to plan effectively while still benefiting from favourable tax rates.

3. Changes in the umbrella company sector

Starting in 2026, recruiters and clients will be responsible for ensuring that umbrella providers make correct PAYE deductions. This is part of a clampdown on fraud and non-compliance in the umbrella industry.

Implications for the industry

Increased Scrutiny: Agencies and end clients will need to ensure they engage with compliant umbrella companies, leading to a more regulated environment.

Potential for Higher Compliance Costs: The need for due diligence may increase operational costs for recruitment agencies and clients.

4. Wage increases and employment costs

The National Minimum Wage will rise by 6.7% to £12.44 per hour from April 2025. This wage increase reflects the government's commitment to supporting low-paid workers amidst rising living costs.

Effect on contractor rates

Market Adjustments: As the minimum wage rises, contractors may need to adjust their rates to remain competitive, particularly in sectors heavily impacted by minimum wage policies.

5. Tax avoidance measures and non-dom eax regime

The government plans to abolish the non-dom tax regime, replacing it with a residence-based tax system. This initiative aims to tackle tax avoidance and ensure fairness in the system.

For IT contractors

Increased Tax Transparency: Contractors who previously benefited from non-dom status will need to adjust their tax strategies accordingly.

6. Overall economic and fiscal context

The budget is framed against a backdrop of economic recovery, with growth projected to rise to 2.0% in 2025. The government aims to stabilize the economy and public finances while boosting investment in public services and infrastructure.

7. Investment in R&D and innovation

A key feature of the Autumn Budget is the record funding of £20 billion allocated for research and development (R&D), along with an additional £950 million earmarked for skills investment. This substantial financial commitment is crucial for bridging gaps in critical technologies, particularly in areas such as artificial intelligence (AI) and quantum computing.

Furthermore, the government plans to inject over £100 billion in capital investment over the next five years, aimed at fostering growth across various technology sectors. Such investment is expected to spur innovation and enhance the UK’s competitiveness on the global stage.

8. Focus on skills development

To support the burgeoning tech sector, the introduction of Skills England and the revamp of the Growth and Skills Levy are pivotal initiatives. These programs are designed to enhance workforce capabilities, ensuring that the talent pool is equipped with the necessary skills to meet industry demands.

9. Digital infrastructure commitment

The government has pledged over £500 million for digital infrastructure improvements, which are essential for enhancing connectivity and enabling tech growth. A robust digital infrastructure is foundational for businesses, allowing them to innovate and operate efficiently in an increasingly digital economy.

10. Emphasis on security and regulation

Another area of concern is the lack of substantial investment in AI security measures. Industry leaders have emphasized the need for regulatory clarity to facilitate the responsible adoption of AI technologies. As AI continues to evolve, ensuring that innovation occurs within a secure framework is paramount. The budget’s focus on creating a safe and regulated environment for AI development could be crucial for fostering trust and encouraging investment in this transformative technology.

11. Clean energy initiatives

The Autumn Budget also includes considerations for clean energy and green hydrogen projects, aligning with the UK’s ambition to become a renewable energy superpower. Investments in sustainable technologies are expected to intersect with advancements in the tech sector, creating opportunities for innovation that contributes to both environmental goals and economic growth.

The Autumn Budget 2024 presents a mixed bag of challenges and opportunities for IT contractors and the tech industry. While tax increases and compliance measures may impose additional burdens, the focus on economic stability and investment in public services could pave the way for long-term growth. Contractors should stay informed and consider how these changes will affect their business operations and financial strategies moving forward.