Whilst a repeal of the IR35 reform was wishful thinking, IR35 did feature in the published statement as expected, at 5.50:
“The government will legislate in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules.”
In short, this fixes the issue where a Deemed Employer who becomes subject to a tax bill as a result of the off-payroll working rules, ends up paying tax that has already been paid by the contractor on that income. Up until now there has been no mechanism for this situation which results in some tax being collected twice, which is wrong. The change will allow the Deemed Employer to offset tax already paid against their own liability.
The fix will be in place from April 2024 and will apply to all liabilities dating back to April 2017 when the new rules were first introduced to the public sector.
This has long-been a major flaw within the legislation and will bring more fairness to the system which will be of at least some relief to both engagers and contractors.
One of the central announcements is a reduction in National Insurance (NI) for workers and the self-employed, with a particular focus on the Class 1 Employees’ NI rate decreasing from 12% to 10% starting January 6th, 2024. The Chancellor estimates an annual benefit of £450 for the typical employee.
Self-employed individuals will benefit from the complete abolition of Class 2 NICs from April 6th, 2024, and a 1% reduction in Class 4 NICs, dropping from 9% to 8%. This adjustment aims to alleviate the financial burden on the self-employed.
While these changes provide relief for employees and certain self-employed workers, limited company contractors, who typically draw low salaries, may not see significant benefits.
There will be no reversals to the recently increased Corporation Tax rates.
The government also signals further crackdown on tax avoidance promoters, introducing new measures such as criminal offences for continued promotion of avoidance schemes after receiving a stop notice and empowering HMRC to take disqualification actions against directors involved in promoting tax avoidance.
The full expensing relief capital allowances, allowing businesses to offset investments in assets like IT and machinery against tax bills, will be made permanent. This move aims to stimulate business growth and innovation.
Other notable changes include a freeze on the small business multiplier for business rates and increases in the National Living Wage and state pension.