Why limited company working could be back in vogue in 2025

Before limited company contractors mentally pack away October’s Autumn Budget 2024 – probably until April, when its unpalatable parts take effect, it’s worth considering how some of the threads by the chancellor will work, altogether.

The need for a mid to long-term Autumn Budget impact assessment

As far as personal service company directors and limited company contractors are concerned, I want to look at the impact of the chancellor’s measures over the medium to longer term, writes Christian Hickmott, managing director of Integro Accounting.

Many articles have examined the granular details of Rachel Reeves’ taxation changes, especially in the immediate term, and it is indeed worth reading the many good editorials that address HMRC liabilities increasing from April.

Accounting for the small stuff

But the big picture matters most for contractors, not least because it is us tax and accounting advisers who limited companies enlist to sweat the small stuff on their behalf.

Yet I’m not sure that the ‘big picture’ for ‘LTD’ has got the coverage it deserves.

When I listened to Labour’s first chancellor in almost two decades delivering the UK’s fiscal statement five weeks ago, two bits have stayed with me. To call them ‘indelible’ might be overdoing it but ‘memorable’, and for not the right reasons, is fitting.

What two things Reeves said stuck with me (and in my craw)

First, to this still somewhat new administration led by Sir Keir Starmer, manifesto promises are a game of rather contrived semantics.

In fact, to listen to the chancellor’s speech and then look at the corresponding measures, anybody new to this country would think ‘employees’ are the only “working people” in the UK.

Second, it was hard to keep up with the sheer amount of tax increases laid at the door of tiny, entrepreneurial commercial operators. They came from all directions from the former Bank of England employee, penalising contractors, freelancers and small business owners. Yes, Reeves hit all those people who are not considered to be “working people” by the Labour Party.

Goodbye indignation, hello resignation…

Today and now that the dust is settling on the budget, my sense of indignation is slowly giving way to reluctant resignation. And that reminds me of the biggest ever kick in contracting’s shins. It came from Labour 25 years ago.

In 1999, the ‘Inland Revenue’ (as HMRC was then) issued press release number ‘35’ announcing changes to the way limited companies would be taxed. The so-called ‘IR35 legislation’ was subsequently introduced -- on April 6th 2000.

Intermediaries legislation, the rollercoaster ride we’re all still sore from

Anyone who has worked as a contractor for any significant number of years will understand the rollercoaster that the whole industry has been on since that time.

Inherently flawed from the start, IR35 has been picked at and tweaked by one government after another, all the time frustrating bonafide contractors just trying to work while annoying MPs across the political spectrum.

The legislative layers of change to IR35 (most notably on 06/04/17 in the public sector and 06/04/21 in the private sector), have led to a climate where even specialist employment lawyers cannot immediately decide, nor agree, whether IR35 has been applied correctly.

Complexity, confusion and a climate of challenge

Such complexity, confusion and climate of challenge have led to many long drawn-out high-profile IR35 cases, involving IT contractors and celebrities, with six-figure sums owed to HMRC and swingeing legal fees to boot.   

While it is individual contractors who have suffered the most from this dogmatic pursuit of IR35 -- in what has played out like a game of political football, there are other groups affected too.

What does all this have to do with Autumn Budget 2024? These four stakeholders will tell you

Over the last 25 years, the large corporates that depend on a flexible, highly skilled agile workforce to succeed and deliver for their shareholders have been caught up in the relentless gyrations of the IR35 machine.

So too have recruitment agencies and umbrella companies.

And it’s all been overseen and governed by HMRC.

Yet the Autumn Budget on October 30th contained several changes for all these different groups.

1. End-clients

End-clients will be faced with a significantly higher employer’s national insurance bill for their permanent staff from April 6th 2025.

And those contractors hired through umbrella companies will no doubt wish to talk about raising their rates too (to compensate for the increase in employer NICs which comes out of their pay packet, alongside their employee national insurance contribution).

Up until now the cost of properly investigating and implementing IR35 since the off-payroll rules were introduced in 2017 and 2021 has been prohibitive for many end-clients. So prohibitive, in fact, that it has been cheaper for organisations to apply a ‘blanket’ approach to dropping limited company contractors.

However, push the costs of national insurance up too high, as Reeves has now likely done, and the cost-analysis starts to tip in favour of end-clients looking at proper ‘LTD’ usage.

2. Recruitment agencies

Recruitment agencies will find themselves responsible from April 6th 2026 for ensuring that their umbrella partners are compliant with paying national insurance contributions.

It’s easy to decide on and articulate that as a policy, but it will be quite the exercise as a compliance procedure, especially for resource-restricted smaller businesses.

3. Umbrella companies

Umbrella companies will find themselves under closer scrutiny as laid out in the policy paper “Tackling non-compliance in the umbrella company market.”

While closer scrutiny of rogue PAYE operators is always welcome, the real test will be in how this scrutiny is applied, and whether those umbrella companies operating legally and providing a good service to the flexible workforce will be protected from being caught in the crosshairs.

4. HMRC

The taxman is to have his staff numbers bolstered, with 5,000 additional compliance officers already being approved.

An initial batch of 200 officers started at HMRC w/c Nov 25th 2024 “and we expect to bring in another 300 by the end of this financial year,” HMRC’s CEO Jim Harra told MPs last month.

So, that’s an initial cadre of 500 staff dedicated to compliance just as employer NICs increase and just as the employer NIC threshold (at which it becomes payable) falls.  Interesting timing.

Standing back from the detail to look at the big picture

The above factors affecting the above four constituents of the contractor market may not create much of a storm in isolation. But when combined, they gel and so look set to have an impact larger than the sum of their parts.

To my mind, there is therefore more than a glimmer of hope that ‘PSC’ or ‘LTD’ is potentially going to be back in business in 2025/26, what with the taxman’s new tanks all parked on the lawn of almost everyone else in the UK contracting sector.

Autumn Budget is a (long-term) boon for outside IR35 limited company contracting

Although it is always difficult to predict what may take place in the contracting market’s future, it seems that the longer-term impact of the Autumn Budget on outside IR35 contracts will be a positive one.

At the very least, the chancellor’s announcements add up to being the brightest that the outside IR35 climate has been for the best part of a decade.

My hope and expectation is that these taxing changes hitting mainly umbrella companies, umbrella company workers, and end-clients, will be the impetus for an industry-wide move towards better understanding, regulation and usage of outside IR35 contracts.

With these Autum Budgetary measures and their cumulative effect, we may even be looking at reform ‘part four of IR35’ in all but name, from a Labour government that knows their original legislation, and the Conservatives’ two successor frameworks, constituted a direct approach that now needs an indirect approach to make good officialdom’s possibly good and honourable intentions.

My final thought for this festive season

Maybe it being nearly Christmas is a contributing factor, but my sense of reluctant resignation is now giving way to a sense of optimism. And there’s an almost simmering, industry-wide sense that with the UK government giving limited company contractors little-to-nothing during covid, and lashings of legislation before it, enough is surely enough.