On Wednesday 30th October, The Chancellor, Rachel Reeves unveiled Labour’s first budget in 14 years’. It’s a fact that all Budgets are political and the recent Autumn budget wholeheartedly proved that. The run-up to the budget saw daily commentary about what was to be announced and took advantage of the fact that it would be the day before Halloween.  Was it ‘spooktacular’ – I think so.

You can view the Carrington budget report at the end of this page – it’s a much heftier document than usual and I have picked a few headlines below which I think will be the most relevant to any umbrella worker, Recruitment Agency or end client.

Employer NI

The repeatedly touted rise in employer NI is probably the headline grabber and there is no doubt that this will absolutely cause businesses to have a hard think about increasing staffing levels. As well as increasing the ER NIC rate by 1.2% from April 2025 the threshold at which it applies is being reduced from £9100 to £5000. Unfortunately, any contractor employed via an umbrella company will feel a ‘direct hit’ of this increase unless their headline agency rate is increased to compensate you. One of the first deductions that is taken from the headline agency rate is Employer NI. If this is increased, there will be a decrease in gross taxable income and a subsequent reduction in net take home pay. For example, a headline rate of £600 would today see an employer NI deduction of £337.98 per week. Post April 2025 this ER NIC deduction will be £373.81 per week. To see no impact in April 2025 the headline rate would need to be uplifted to £610 per day. 

In terms of mitigation many of our workers use pension sacrifice, although another budget blow is that unused pension funds will now fall under the net of Inheritance tax. However, this needs to be balanced against the reduction in take home pay in April. I think more of our workers will look to operate pension sacrifice and those that already do so may consider increasing the current level if they are below the annual allowance.

 

Transfer of debt rules to be applied to umbrella companies, agencies and end clients

Although perhaps not a main headline this announcement will directly impact all recruiters, end clients and umbrella companies. From April 2026 the responsibility for accounting for PAYE tax and NICs will pass from the umbrella company to the employment business which is usually the recruitment agency. Where no recruitment agency is in the chain the responsibility will pass to the client. If an employment business uses an umbrella company who operate a non-compliant tax avoidance scheme the liability for loss of any tax will fall to them and not the umbrella. The other aim of the legislation is to protect workers from the compulsory use of umbrella companies and the risk of underpayment of tax – this is what happened with terrible consequences of the Loan Charge.

Our position on this is that we very much welcome the changes. As an FCSA member we have already been in consultation about the changes and how to best support Agencies in the drive for transparency. Suggestions are wide ranging and include ways such as sharing the RTI with Agencies to draft ideas that once the tax liability is calculated the funds could be paid to the agency from the umbrella company and the Agency will then pay HMRC. This has some parallels with the CIS scheme as a precedent.  We are also looking at changes / implementation of revised indemnity policies that will reassure and protect Agencies in terms of future risk. We will be working closely with our agencies and end clients to give them full support and ensure compliance. Unlike other commentators we don’t see this a detrimental to the umbrella sector – we believe any compliant and transparent umbrella will thrive and its only a shame that it is taking 18 months for the changes to come in. During the next 18 months we believe non- compliance will significantly increase so that unscrupulous operators can make the most money before the legislation kicks in. 

 

Capital Gains Tax and reliefs 

As expected, rates of Capital Gains Tax (‘CGT’) are increased, though not perhaps by as much as some had predicted. The rate for basic-rate taxpayers increases from 10% to 18% and for higher-rate taxpayers from 20% to 24%, bringing them in line with rates on residential property (which remain unchanged).

As for CGT Business Asset Disposal Relief (‘BADR’), from 6 April 2025 the rate of tax increases to 14% and from 6 April 2026 to 18%. Its currently 10%. If you have a limited company which you are looking to close by way of a Members Voluntary Liquidation and subsequently claim BADR you should get this implemented sooner rather than later. Carrington Accountancy can offer a complete advice service for such closure, and we also work with two firms of liquidators that offer our clients very competitive fees for the liquidation process. ( I am always amazed at some of the fees I see from other liquidators – they can be disproportionately high). You do need to make sure that you won’t need your ltd company and I have seen an uptick in outside IR35 contract over the last few months. I have heard some views that the increase in ER NIC may well stimulate the outside IR35 market but if you are sure you want to close and can use the current BADR tax rates then get this progressed as soon as possible. 

 

Inheritance Tax, reliefs and pensions

Major changes are announced to Inheritance Tax (‘IHT’), though the Nil Rate Band and the Residence Nil Rate Band remain unscathed (albeit frozen until 2030) and there are no changes to the rules on Potentially Exempt Transfers.

Business Property Relief (‘BPR’) and Agricultural Property Relief (‘APR’) are ‘reformed’ from 6 April 2026.  While the existing 100% reliefs continue for the first £1m of combined agricultural and business property, thereafter the rate of relief will be 50.  However the uplift to market value which applies for CGT purposes on death, which some had feared would be removed, remains.  

The other major change to IHT is that from 6 April 2027, the balance of any pension fund unused at the date of death (and death benefits payable by a pension scheme) will be brought into the pension owner’s estate for IHT purposes.  This is obviously aimed at countering the use of pension schemes as IHT planning strategies, rather than as a way to fund retirement.

One side effect of the inclusion of a pension fund in the IHT estate is that it may in many cases have the result that the total estate now exceeds £2m, thus reducing the “residence nil rate band” by £1 for every £2 of the excess.  Thus, the pension fund may not only itself be taxable, but its inclusion may increase the tax payable on the remainder of the estate.

 

Property: Stamp Duty Land Tax

The chipping away at landlords of residential property continues.  Where the additional rate of Stamp Duty Land Tax (‘SDLT’) is payable on purchases of additional dwellings (whether as second homes or for letting), this increases from 31 October 2024 by 2% to 5%.

 

Late payment interest rates on unpaid tax liabilities

Easy to miss was the Chancellor’s mention of interest on late paid tax.  From 6 April 2025 the 7.5% interest rate will be increased by 1.5%. This could impact small and medium sized businesses with cashflow issues. If you are also running your ltd company alongside your umbrella work and you have corporation tax to pay make sure you pay it on time or even in advance of the due date.

 

Overall, a very negative budget for contractors and a budget that is generating lots of call and emails. Both Carrington Umbrella and Carrington Accountancy are here to provide as much support and advice as we can so if there is anything you would like to discuss do get in touch.

 

Autumn Budget 2024