Spring Budget 2024: Contractors using limited companies ‘get nothing,’ despite higher VAT threshold and 2p NICs cut

Jeremy Hunt packed out Spring Budget 2024 with a 2% NI cut; a VAT threshold lift, a British ISA and a new residency test for ‘non-doms.’

But “once again” the chancellor gave almost “nothing” to Personal Service Companies who will feel “let down”, says Beansprout accountant Helen Christopher.

FreeAgent confirmed to ContractorUK that limited company directors usually draw “too small a salary for NI” which isn’t on dividends either, so the 2% NI cut won’t help PSCs.

Worth £450 a year (rising to £900p/a due to the same dip in Jan ‘24) the NI cut will be “appreciated” by umbrella staff, calculates DNS Associates.

'Victory dance'

Staffing firm Bowers Partnership went further, saying the many people forced from PSC to PAYE due to IR35 reform will likely do a “victory dance.”

Brookson agrees the NI cut is “welcome” but says more pleasing to umbrella contractors, will probably be Mr Hunt’s vow to plough on with regulation.

Brookson’s managing director Matt Fryer observes that at Spring Budget chap 2.41, the government pledges to:

“Set out next steps for tackling non-compliance in the umbrella company market shortly.”

'New guidance to support workers and businesses using umbrella companies'

Citing 5.42, where it says the update will be on Tax Administration & Maintenance Day, Fryer said it’ll be soon, as in 2023 it was April 27.

Boss at Clarity Umbrella, Lucy Smith embraced a follow-up announcement made by HMT at the same chapter, which states.

“In summer 2024 government will…publish new guidance to support workers and other businesses who use umbrella companies.”

SAW Consulting is subdued though, saying a vow of guidance and an update takes brolly staff “no further on and we go back to waiting.”

'Chancellor dragging his feet on brollies'

Professional Passport is even more unforgiving.

Chief executive Crawford Temple accused the chancellor of ‘dragging his feet while tax avoidance promoters/ schemes continue to thrive.’

But Chris Bryce, of the FCSA, says the NICs cuts from 10% to 8% may prompt workers looking for take-home pay enhancers to call off the search.

“The much-briefed 2% point reduction in Employees’ National Insurance from April 6th 2024 will hopefully reduce the temptation of schemes and scams offered to umbrella workers.”

“However,” continued Mr Bryce, “it’s not necessarily all good news for the contractor sector.

“Employee NI is largely paid by those who are in employment, and of course it only applies to those who are paid over the NICs threshold of £1,048 per month. So PSCs will be unmoved.”

'Spring Budget 2024 is aimed at the employed'

SG Accounting reads the chancellor’s National Insurance offering similarly.

“Spring Budget 2024 is a budget aimed at the UK’s employed worker population mainly, and less for business,” says SG’s Dan Mepham.

“It was strange that they leaked the 2p cut to NI, as, in the end, that was one of the few headline-grabbers for the contractor sector.”

Mepham acknowledges that Hunt’s VAT registration threshold announcement – increasing it from £85,000 to £90,000, is the other main headline-grabber.

But also a chartered accountant, Ms Christopher at Beansprout is a bit underwhelmed.

Despite the threshold being key to VAT planning for contractors, Christopher said she “doesn’t see this making a huge difference, with only a £5k uplift.”

'Admin-weary contractors will like VAT registration threshold rising to £90,000'

Not looking a gift horse in the mouth however is Natalie Bowers, Bowers Partnership’s boss.

“For the UK’s admin-weary contracting community, an increase in the VAT threshold, giving everyone a bit more breathing room before crossing over to the dreaded paper trail, is something we’ll take.

“This new higher VAT threshold from April 6th 2024 – and higher deregistration threshold moving from 83k to 88k from the same date, should mean less administrative hassle for contractors and more time for their all-important billing.” 

Similarly sweeping changes are announced at chapter 5.29 of Mr Hunt’s 'Red Book,' affecting non-doms.

'Simpler, fairer residency-based system to replace non-doms'

In fact, the chancellor said in his speech that the current tax system for non-doms will be axed and replaced with a “modern, simpler and fairer residency-based system.”

Kevin Austin of Access Financial, which specialises in overseas contracting advice, believes the jury is out.

“Spring Budget 2024 claims this new residency-based system will bring in initially an estimated £2billion; what is not known is the effect of the change on the economy overall. 

“According to the IFS, there are some 37,000 people currently claiming non-dom tax status, paying £6billion collectively in income tax, national insurance, and capital gains taxes. I wonder if HMRC has statistics on how many are so firmly embedded in the UK that they are unlikely to up stick and depart.

“We have yet to determine how this will impact non-dom status for Inheritance Tax purposes, as this could have a disastrous effect on encouraging wealthy non-doms to leave the country.

“The chancellor needs to see that you cannot take the attractiveness of the UK for granted. The wealthy have a wealth of choices as to where they can choose to relocate.”

'Temporary repatriation facility'

Under the chancellor’s proposal, set to be introduced from April 6th 2025, there will be:

• an option to rebase the value of capital assets to April 5th 2019;
• a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26), and;
• a two-year temporary repatriation facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

'Overwhelmed'

Less convinced the more that he looks at the detail, Austin continued: “Hunt must ask himself if the UK is overwhelmed with the rich - those who bring net benefits to the economy.  It is arguably overwhelmed with everybody else.

“Unfortunately, the argument [against non-doms] has tipped so far to focus on fairness and short-term revenue that the long-term picture is out of mind.

“But the next general election is the furthest ahead our current government can look. Short-termism damages the long-term economic interest of the UK's economy.”

In contrast to the ending of the 'non-dom' tax system, heavily trailed Spring Budget items like an extension to both the fuel duty freeze (now renewed for another 12 months) and alcohol duty freeze (now frozen until Feb 2025) did emerge today.

'New British ISA is pleasing, but...'

Similarly, the leaked tax on vaping liquids was followed through on by the chancellor, as was the introduction of a new British ISA.

IFA Angela James of Yolo Wealth, is glad but not without the odd reservation and regret, reflecting:

“Although pleasing to see an increase to the ISA allowance, this comes with caution as this is suggested to be available only as an addition via the British ISA.

“This could be construed as some as an over complication the system and it may end up being harder to manage for providers with the specific investment requirements for the additional £5,000 allowance.

“Details will come following the consultation but the purpose is to increase investment into domestic equities. Risk is another important factor here, it remains important for those investing to manage their risk and this could pose some additional risks causing.”

'Govt at Spring Budget 2024 has just turned a blind eye to contractors'

But it is the risk - politically - which the government is taking which puzzles Seb Maley, CEO of Qdos, by Spring Budget leaving hundreds of thousands of voters who run PSCs out in the cold.

“Yet again, the government has turned a blind eye to the needs of millions of others – whether freelancers, contractors or small business owners,” he says. 

“With an election on the horizon, this Budget felt like the last chance saloon for the Conservatives to turn the tide and win the support of the independent workforce, many of whom have lost all confidence in them.

“But with little to take from the Chancellor’s measures – and the likes of IR35 overlooked completely – this vital sector of the workforce has been all but abandoned.” 

'Dividend tax allowance'

A downbeat Rebecca Seeley Harris echoed: “The chancellor today at Spring Budget promised a fairer, simpler tax system but, has completely ignored the PSC [population], so another very disappointing Budget.” 

Founder of off-payroll rules advisory ReLegal Consulting, Seeley Harris continued: “There are NICs cuts for the employed and self-employed so, it seems, there is a very clear message from Mr Hunt conveying the government’s obtuse attitude to contractors. 

“This is very regrettable for the so-called ‘party of business.’ With this government, I suppose we should all be grateful that at least the chancellor didn’t today cut the already measly dividend tax allowance.”