The chancellor increasing Employer’s NICs would be a slight on the droves of ‘working people’ using umbrella companies.
* Live Budget 2024 Updates here – Employers NI will rise from 13.8% to 15% from April 2024. The threshold will also be cut from £9,100 to £5,000. The employment allowance will be increased from £5,000 to £10,500*
Employer’s National Insurance has become Autumn Budget 2024’s most likely tax hike, in a big blow to umbrella company contractors.
Before Wednesday, Capital Gains Tax, pensions lump sum tax relief, and dividends were the favourites to be raided on October 30th.
But in the House of Commons on October 9th, prime minister Keir Starmer ducked answering whether Employer NI would be increased.
‘Commitment to not raise tax on working people’
“I am not going to get drawn on decisions that will be set out,” he said, referring to chancellor Rachel Reeves’ incoming statement.
Still not answering the question, the PM added: “We made an absolute commitment to not raise tax on working people.”
The question to Starmer, ‘Does Labour’s pre-election pledge not to raise NI cover Employer NI?’, was asked by ex-PM Rishi Sunak.
Sunak was the chancellor who introduced IR35 reform in the private sector, also known as the off-payroll working rules of April 6th2021.
‘Labour’s pre-election NI freeze pledge was about employees’
However, if Employer Class 1 NI of 13.8% is increased, it is not PSCs that will largely be hit, but umbrella company contractors.
And it’s a prospect that business secretary Jonathan Reynolds used a Sky News interview on Sunday to firm up.
Almost referring back to Sunak’s query, Reynolds said that Labour’s pledge not to hike NI “was specifically…a reference to employees.”
‘Higher Employer NICs has implications for umbrella company staff’
“Any increase in employer’s national insurance is going to have a direct implication for umbrella company staff,” warns SG Umbrella.
SG’s Dan Mepham told ITContracting.com: “An increase in Employer NI would be reflected in the rate paid to umbrella employees.
“Therefore a 2% increase, say, in Employer’s National Insurance would be passed on in full; 2%, to the umbrella employee.”
‘Few assumptions’
A chartered accountant, Mepham acknowledged he was making a “few assumptions” — but broadly he maintained that umbrella employees would be hardest hit.
“For example, we currently have an Employment Allowance which allows eligible employers to reduce their NI bill by up to £5,000.
“If there is an increase in Employers NI, then will it be a straight increase?
“Or will a deduction be introduced [to mitigate the impact], or will they extend the EA to make more businesses eligible?
‘Employer NI hike would represent a tax increase for working people’
A possible shot across the bows of umbrella companies and their staff isn’t elating the Freelancer & Contractor Services Association.
“A possible increase in Employers’ NICs is being painted [by the government] as not being a tax increase for ‘working people’.
“In [practice], it absolutely would be a tax increase for working people,” the FCSA’s CEO Chris Bryce told ITContracting.com.
‘Less gross income for doing the same work’
He explained: “For umbrella workers, the consequences of a rise in Employer National Insurance would be felt directly in their gross pay.
“Employment costs have to be deducted from their assignment rate, so they’d be left with less gross income for doing the same work.”
A former IT contractor, Bryce also said the hike won’t just hurt the contractor and freelance sector.
‘Feel the pinch’
He says: “Even regular employees will feel the pinch [if Employer NICs are increased at Autumn Budget].
“Employers’ overall payroll costs [will] increase since those employers will be less able to expand their workforce or increase wages.”
Rebecca Seeley Harris, founder of the Fair Umbrella Campaign, is concerned.
‘Employers would be out of options’
“It is…[indeed] likely that the worker will shoulder the cost of any raise in Employer’s NICs.
“But the bigger issue here is if employers don’t want to employ, because of the pressure being put on them in higher taxes… [then] what are their options?”
Almost answering her own question, Seeley Harris, a tax lawyer said:
“It is often said that the flexible workforce is the lifeblood of the economy. It should enable businesses to fill gaps in productivity and skill, as and when needed to enable them to be agile and respond to demand.
“Instead, it is a cumbersome, over-regulated sector that businesses struggle to understand.
“There is no certainty in their position working with individuals [who are] off-payroll so, some companies have to put it on their risk-register in case they get investigated [by HMRC]. How can [any of] this possibly be good for business?”
‘Employment Rights Bill gave nothing to umbrella companies’
Also an IR35 adviser to end-clients, Seeley Harris observed that last week’s Employment Rights Bill contained nothing for engagers, workers, or umbrella companies.
“There was nothing for umbrella companies or their employees in the Employment Rights Bill. There could have been mention [for either] under the new Fair Work Agency, but there wasn’t even that.”
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