National Insurance Contributions are set to be cut from 12% to 10% from 6 January 2024, according to the UK's Autumn Statement 2023 published yesterday.

Chancellor of the Exchequer Jeremy Hunt presented his 2023 Autumn Statement to Parliament yesterday. Hunt added that he was presenting an 'Autumn Statement for growth'. The speech set out 'growth measures to back British business' and 'measures to make work pay'.

In terms of taxes, the chancellor cut rates of National Insurance and, for businesses, made the 'full expensing' (100%) capital allowance scheme permanent.

The primary rate of Class 1 employee National Insurance contributions (NICs) will be cut from 12% to 10% from 6 January 2024, with employees benefitting from January onwards.

The government is also cutting taxes for the self-employed from 6 April 2024. The government is reducing the main rate of Class 4 self-employed NICs from 9% to 8% and will abolish the Class 2 self-employed NICs, reforming and simplifying the tax system. The Office for Budget Responsibility (OBR) estimates that 2.1 million people will gain from this change in 2024/25.

Fiona Coombe, Director of Legal and Regulatory Research, said, "The change to NICs from January 2024 may cause some headaches for employers and payroll providers but will be welcomed by many lower-paid workers. Meanwhile the abolition of Class 2 NICs was first proposed in 2016 to simplify the system for self-employed individuals. Presumably the concerns raised at the time over the effect on those wishing to access a state pension have now been resolved."

These changes to NICs are forecast to cost the government between £9 billion and £10 billion a year over the next five years.

IR35 Off-Payroll Working Rules Offset

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.

If the HMRC finds an end-user client to have wrongly determined the status of its off-payroll workers as self-employed, the deemed employer (which could be the client or an agency further down the labour supply chain) becomes liable for Income Tax and National Insurance contributions (NICs) that should have been deducted from the fee paid to the off-payroll worker had the correct status determination been made.

In this situation, HMRC may collect more tax than is due because the worker and their intermediary may have already paid tax and NICs on the same income, believing they were outside the rules.

Current legislation does not allow HMRC to set off amounts of tax and NICs already paid by a worker and their intermediary against the PAYE liability of the deemed employer.

Instead, where a worker and their intermediary have paid tax and NICs on income that should have been subject to the off-payroll working rules, they may be entitled to claim a repayment for amounts they have overpaid. HMRC has implemented a process within its existing powers to notify workers and their intermediaries that they may be due a refund for taxes already paid on the engagement, where contact information is available.

However, no such process currently exists for the deemed employer. As such, the current process results in the deemed employer bearing the full cost of the tax and NICs liability. 

The changes will take effect from 6 April 2024.

"The announcement to enable a deemed employer to offset any overpaid tax against that already paid by the contractor is therefore welcome and corrects an inequitable and unfair consequence of how the rules were originally drafted", Coombe said.

The government has also announced reforms in the Autumn Finance Bill 2023 to the Construction Industry Scheme, including adding VAT as part of the Gross Payment Status (GPS) compliance test, giving HMRC more power to remove GPS immediately in cases of fraud. From 6 April 2024, subcontractors must demonstrate compliance with VAT obligations to be granted and keep gross payment status.

Tougher consequences for promoters of tax avoidance

The government intends to legislate in the Autumn Finance Bill 2023 to introduce tougher consequences for promoters of tax avoidance schemes. These include a new criminal offence for those who continue to promote avoidance schemes after receiving a notice requiring them to stop; and a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company.

"Although there is no mention of regulating umbrella companies, the plan to introduce a criminal offence for promoters of tax avoidance schemes will discourage those companies that seek to take advantage of loopholes in the way tax law is applied," Coombe added.

OBR forecasts for the economy

The independent OBR published new forecasts for the economy and public finances after the Autumn Budget.

The OBR noted that the economy had been more resilient than it expected in its March 2023 forecasts. Instead of contracting by 0.2%, GDP is now expected to grow by 0.6% in 2023.

However, the OBR has downgraded its expectations for economic growth in 2024 and 2025. This is due to forecast inflation and interest rates being higher than the OBR thought back in March. In turn, this is anticipated to lead to lower consumer spending and investment than previously thought. The new GDP growth forecast of 0.7% in 2024 is down from 1.8% forecasted in March, with GDP growth of 1.4% in 2025, lower than the 2.5% expected in March.

The OBR says growth will rise to 2.0% in 2026 and 2027 as inflation falls. This is predicted to boost real (inflation-adjusted) wages and, therefore, consumer spending. GDP is expected to grow a total of 6.7% from 2022 to 2027, compared with the previous forecast of 8.3%.

OBR now forecasts inflation to remain higher for longer, partly due to higher-than-expected earnings growth, though it still projects the inflation rate to fall in 2024 and 2025. From 6.7% in the third quarter (Q3) of 2023, inflation is forecast to decline to 2.8% in Q4 2024 and below the Bank of England's 2% target in Q2 2025 (1.8%).

"If we want those numbers to be higher, we need higher productivity," Hunt said. "The private sector is more productive in countries like the United States, Germany and France because it invests more – on average 2 percentage points more of GDP every year." Hunt added that the measures taken yesterday "help close that gap by boosting business investment by £20 billion a year. They unlock investment with supply side reforms that back British business in the following areas."

According to the OBR, borrowing is lower this year and next, and on average, across the forecast by £0.7 billion yearly compared to the Spring Budget forecasts. Hunt said public sector borrowing must be below 3% of GDP – not just by the final year, but in almost every year of the forecast. "Some of this improvement is from higher tax receipts from a stronger economy, but we also maintain a disciplined approach to public spending," he added.

The Autumn Statement also made the 'full expensing' (100%) capital allowance scheme permanent. Full expensing allows some investment in new plant and machinery to be entirely written off against taxable profits. This had been due to end in March 2026. The Autumn Statement made full expensing permanent.

The government said this would make 'the UK's capital allowances regime one of the most generous in the world'. It hopes this measure will increase investment in the economy and improve productivity. The OBR forecasts this will reduce tax receipts by £10.9 billion in 2028/29.

According to the Autumn Statement 2023, the government is extending the current 75% business rates relief for eligible retail, hospitality and leisure properties for one year, covering 2024/25. The small business multiplier for business rates will remain at its 2023/24 rate in 2024/25.

The day before the Autumn Statement, the government announced the National Living Wage (NLW) and National Minimum Wage (NMW) rates that will come into force from April 2024. It accepted the recommendations of the Low Pay Commission. The National Living Wage rate will be £11.44 from April 2024. This will apply to those aged 21 or over after an extension of the rate to those aged 21 and 22.

Last week, the government announced its 'Back to Work Plan' to tackle long-term unemployment. The plan provides a package of employment-focused support to help 'people to stay healthy, get off benefits and move into work'.

Recruitment industry reacts to Autumn Statement

Neil Carberry, REC Chief Executive, said in a tweet on X (formerly Twitter), "Coming away from the Autumn Statement, my main take is that there is some sensible stuff here, but the growth outlook is grimmer than expected. Jeremy Hunt has thrown the ball into the private sector's court to change things - but is that enough on its own? Many of the brakes on growth are actually in [the] government's gift. His big bet on public sector productivity needs to come in."

Carberry also said yesterday, "The Chancellor has taken some significant pro-business steps today, but the downgraded growth forecasts prepared by the OBR show the scale of the challenge he faces. We need to get the UK powering on all its cylinders to really make progress. And we should remember that – despite today's news – we are still heading for a post-war high on the tax burden over the next few years."

Carberry added, "Reducing employees' NI is a great way to make work pay – and we also welcome the extension of the Restart programme and reform of fit notes as these steps will help ensure that we make the most of the UK's labour force. Extending Restart was a key REC aim, it is a programme that effectively harnesses joint working between public and private sectors to get people into work.”

"Making full expensing permanent is also great news for business and will drive investment, but only in the sectors that can really benefit from it," Carberry stated. "Services firms – the bulk of the economy – benefit far less. That's why freezing the small business multiplier on business rates was an important step, especially when the substantial rise in the minimum wage will stretch many firms after a year of low growth and higher wages already. Changes to national insurance for the self-employed will help, too."

"By delivering real terms cuts in public investment, the Chancellor has put the ball into the private sector's court. It is for business to drive growth, we agree. But the public sector must provide a framework. We saw some of that today in the support and incentives on offer – but it does not yet add up to the industrial strategy the country really needs. And in some areas – like skills – the investments announced today were woefully inadequate. Really engaging with firms on apprenticeship levy reform is long overdue."

Tania Bowers, Global Public Policy Director at the Association of Professional Staffing Companies (APSCo), said: "For the professional staffing sector, the news that HMRC is proceeding with the set off proposals to off-payroll rules is welcome. This latest development – outlined in the full details of the Autumn Statement – has followed three years of lobbying by APSCo on this issue which started when we held the co-chair position of the then named IR35 Forum. Although it doesn't mitigate the dampening impact overall of off-payroll on professional contractors, who should be included in the Chancellor's broad appreciation of the self-employed, it does reduce the unfairness of the rules on recruiters, who are the deemed employers."

"We are also pleased that the chancellor paid heed to our call to expand Investment Zones and proceed with legislation to deal with tax avoidance promoters in our sector, following our recommendations earlier this year," Bowers added. "Making full expensing permanent should also encourage recruitment firms to invest in growth plans, which will certainly be a boost following an arguably difficult year for them after the highs of 2021 and 2022. 

"Any targeted investments in innovation and advanced sectors should boost job creation across technology, engineering, and life sciences which are key sectors for our members. However, there is still a candidate skills deficit and unfortunately continuing to plough on with a singular policy on technical skills, namely apprenticeships, and the dismissal of an opportunity to review business visas, means that our members expect that the much sought-after productivity boost will, as a result, be slower," Bowers said.

Dave Chaplin, CEO of IR35 compliance firm IR35 shield, said Hunt "should have unshackled the UK's flexible self-employed workforce by repealing the unworkable and deeply flawed Off-payroll legislation."

Chaplin continued, "The Tories failed the self-employed by allowing HMRC to push the damaging off-payroll reforms through Parliament, which harmed the people who facilitated growth and gave the UK an edge."

On the offset, Chaplin said, "The government has confirmed that a long overdue fix will happen in April 2024, eliminating the double taxation flaw that has seen contractors and firms paying combined tax rates over 100%."

"However, despite this fix, a legislative lick of paint doesn't help rev up the economy. Off-payroll has been a non-runner from the outset," Chaplin said.

Crawford Temple, CEO of Professional Passport, a UK's independent assessor of payment intermediary compliance said yesterday, "Today's decision by the Chancellor to cut NI contributions will be welcomed by genuinely self-employed workers who will see an increase in their take-home pay but the move could put increased pressure on the umbrella market where we could see an increase in the use of false self-employment models. That risk will require greater enforcement by HMRC across the sector to prevent further market distortions.  The decrease in Employee National Insurance to be introduced in January by 2% will also be welcome news to umbrella workers who will see more money in their pockets."