PM Keir Starmer warns Autumn Budget 2024 will be painful, signalling a ‘bleak’ October 30th for contractors

Sir Keir Starmer has paved the way for swingeing tax rises at Autumn Budget 2024, severely unsettling four leading advisers to contractors.

The prime minister yesterday warned that the statement by chancellor Rachel Reeves, to be delivered on October 30th 2024, would be “painful”.

In a plain-speaking speech outside Number 10, Starmer cautioned that “those with the broadest shoulders should bear the heavier burden.”

'Cracking down'

The PM said “that’s why we’re cracking down on non-doms,” even though non-dom tax reform was actually tabled before Labour took office.

Starmer’s vow to hit non-doms was despite him also saying “hard-working people who make up the [UK’s] backbone…belong here.”

Non-domicile status was the only tax area which the Labour leader specified in his 18-minute speech, from a podium bannered “Fixing the Foundations.”

'Autumn Budget 2024 is going to be painful'

“We will do the hard work to root out 14 years of rot, reverse a decade of decline and fix the foundations,” the PM said. 

“But I will be honest with you. There’s a Budget coming in October. And it’s going to be painful.”

Taken with his subsequent nods to “working people,” and Labour’s vow not to hike income tax, VAT or NI, what’s left to hike is worrying advisers to UK contractors.

'Bleak'

Chris Bryce, chief executive of the FCSA, told ContractorUK: “[The prime minister’s] speech…paints a bleak picture for the October Budget.

“He was clear…Labour will [honour] its pledge not to raise income tax, National Insurance or VAT. But he left the door open for other rises.”

Before Starmer got to his feet yesterday, IPSE warned that the expected tax increases of Autumn Budget 2024 are four-fold.

Each potentially affecting contractors, the four are CGT including Business Asset Disposal Relief (BADR), pensions tax relief, IHT, and corporation tax.

'Options are limited, but beware changes to CGT, Business Asset Disposal Relief'

IPSE’s Andy Chamberlain says Starmer said nothing yesterday to takes these four off the table, as likely areas of adverse change on October 30th.

“Unless it reneges on the manifesto vow not to raise income tax, NI or VAT, Labour’s options are limited,” Mr Chamberlain told ContractorUK.

“So CGT could be hiked and BADR could be reduced or removed. This could impact contractors seeking to wind up their company”.

'Pensions tax relief and IHT'

Policy director at the Association of Independent Professionals and the Self-Employed (IPSE), Mr Chamberlain continued:

“Watch out too [at Autumn Budget 2024] for potential changes to pensions tax relief and inheritance tax.

“In addition, raising the lower [19%] rate of corporation tax would directly impact contractors.

“And while there’s no indication this is under consideration, anything that generates revenue might prove too tempting to ignore.”

'Corporation tax increase not ruled out by Starmer yesterday'

Suspicious ever since Labour’s manifesto was too vague on taxation for his liking, accountant Graham Jenner says the opposite -- that there is now an indication CT will go up.

“I have seen nothing to say that Labour is not intending to increase corporation tax,” Jenner & Co’s founder told ContractorUK.

“Yes, Labour did promise, pre-election, to cap it at 25%.

“But as Starmer highlighted quite a lot yesterday, they’ve since discovered a £22billion blackhole which apparently not even the OBR even knew about.

“If they have no plans to hike corporation tax, why didn’t he just say that? It would a good thing to say now, to give businesses certainty. But he didn’t.”

'A blurred picture provides an opportunity'

A chartered accountant, Jenner says a corporation tax rate of 25% for all limited companies isn’t inconceivable, in the name of alignment.

He says: “In simpler times, when corporation tax was 25%, income tax was 25% and the tax credit on dividends was 25%, there was no additional tax to pay on dividends received for a basic rate taxpayer.

“Abolishing tax credits on dividends, giving a dividend income allowance, and changing corporation and income tax rates, over the years, has blurred the picture; now providing an opportunity.”

'It's all about what the PM didn't say'

Another contractor accountant Anthony Mellor believes it’s right to look at what Starmer didn’t say yesterday to gauge the October Budget’s likely contents.

He told ContractorUK: “This prime minister’s speech warning of a ‘painful’ Budget looks like it’s all about what he didn’t say, more than what he did say.

“My suspicion is that his ‘working people’ rhetoric means those he considers outside that definition, say high-earner contractors, will be targeted.”

'Corporation tax is the easier target'

The Mellor & Co boss says tweaking dividend thresholds, or hiking dividend tax rates, could bypass Labour’s pledge not to raise income tax, while still raising revenue for the exchequer.

“Compared to putting up divisive inheritance tax, corporation tax has got to be the easier target,” Mr Mellor says.

“It would sting PSCs given that they already see CT as a ‘double tax’ on the same money. But PSC may equate to ‘broad shoulders’ in Reeves’ mind. Let’s hope not.”

'Protect, and harm'

“We may see CGT rates go up, and perhaps corporation tax too,” echoes Mr Bryce of the Freelancer & Contractor Services Association (FCSA), representing the fourth of the four advisers to fear a CT increase on Oct 30th.

A former IT contractor, Mr Bryce added: “One thing’s for sure; that in seeking to hold current headline rates to protect ‘working people,’ whatever changes are made [at Autumn Budget] will undoubtedly [adversely] affect millions of other working people.”