What the 2024 Budget means for freelancers
Last Updated on 2 November 2024
On the face of it Rachel Reeves’s first Budget (30 October 2024) focused on raising money from higher employer national insurance contributions, fiddling with Inheritance Tax and Capital Gains Tax, and pissing off Jeremy Clarkson.
But just below the surface – in the accompanying Treasury documents – there are some interesting hints of things to come, including for sole trader digital record-keeping.
Freelance taxes
The headline rates of Income Tax and National Insurance for working people are not changing.
PAYE and Sole Trader freelancers will therefore not be paying any more direct tax.
In fact the thresholds at which we pay tax and NI will likely go up in 2028-29.
This would be good, because it stops people accidentally being drawn into paying more tax just because their income has gone up with inflation.
What about Limited Company Freelancers?
The big news from the Budget was that employers will be paying a lot more ’employer national insurance’.
From April 2025 the rate goes up from 13.8% of salary to 15%, and the point at which it kicks in will be reduced from a salary level of £9100 to £5000.
If you are running a Limited Company of your own and if you pay yourself a salary this could mean you’d be paying more national insurance.
It’s worth explaining here what ‘employers NI’ is.
Employers have to pay this from their own coffers for every PAYE staff member they have on the payroll. It is basically an ’employer head-count tax’, which is what I wish it was called.
This is different from the ‘employee national insurance’ which you and I pay from our salary, and which sole traders pay on their profits. This gives us a national insurance record which makes us eligible for certain state benefits, including the State Pension.
The fact that they are both called ‘national insurance’ is IMHO ridiculous. It just confuses people.
More work for freelancers??
One of the most interesting knock-ons of increasing employers national insurance in this way is that it makes hiring staff much more expensive.
This gives companies a big incentive to find ways to keep staff off the books. Could that mean more freelance work is offered?
There’s a but…
But of course the tax office gets less tax from people who are self-employed. So it has complicated rules (see my blog on IR35) to stop people being paid as self-employed when they’re really behaving like employees.
IR35 and the new changes to employer NI pull in opposite directions.
And there’s more…
On top of that, some organisations outsource their payrolls to ‘umbrella companies’. These act as employers for tax purposes on behalf of their clients. Some freelancers are forced to work through an umbrella company, rather than be on the payroll of the people they’re actually working for.
The new NI rules mean that the umbrellas will have to pay a lot more employer NI, as technically they employ the freelancer on PAYE.
To keep their profits up they are going to pass on the NI increase to the freelancer, taking more money out of their take-home pay. IPSE – the self-employment association – are really concerned about this. >
Freelancers working through an umbrella company may well be worse off.
That sounds unfair on the worker!
In fact the new Labour government is suspicious of the way umbrella companies are being used, and is likely to make other changes, including:
- regulating them
- making clients and recruiting agencies legally responsible for the tax decisions made by the umbrellas they use
This could vastly reduce the attractiveness of umbrella companies as a way of outsourcing payroll.
Watch this space.
Separately the government is committed to giving workers more employment rights, which could impact PAYE freelancers on very short contracts.
The recent argument about ‘what is a working person‘ was very silly. But the coming attempt to distinguish the ‘genuinely self-employed’ from an employee will be much more interesting, with possible implications for the rights and taxes of many freelancers.
Let’s see how that all pans out.
And finally – Making Tax Digital for Income Tax…
Following the Budget, the government has confirmed it’s sticking to the timetable for making sole traders and landlords report turnover and business costs every three months using special cloud accounting software.
More than that, it’s just announced it’s going to reduce the threshold at which sole traders have to do this to £20,000 income a year, “by the end of this parliament” – but with more details to follow.
This means most sole traders I meet might have to get used to keeping records as they go along using an accounting app from April 2028.
Timetable for Making Tax Digital for Income Tax – sole traders and landlords
- From April 2026 – Sole Trader income/turnover greater than £50,000 per year
- From April 2027 – Sole Trader income/turnover greater than £30,000 per year
- From April 2028? – Sole Trader income/turnover greater than £20,000 per year
This appears in the Treasury’s Budget document, which you can read here >
This is the relevant section:
Read more about Making Tax Digital for Income Tax on gov.uk here >
Feel free to get in touch if you spot anything I’ve missed which might affect freelancers. You can also ask questions below.
NB: David Thomas Media Ltd is not responsible for the content of other sites nor any financial advice provided by them.
Posted on 02 November 2024
