Autumn Budget 2024: What’s in it for the self-employed?

It’s fair to say that this Labour government hasn’t got off to the best of starts. Controversy over freebies for ministers; pensioners up in arms over the cut to the winter fuel allowance; dysfunction at the heart of government resulting in Sue Gray’s departure. 

Labour’s first budget in 14 years, therefore, offered a possible fresh start. After weeks of fervent speculation about which levers Rachel Reeves may employ to plug the hotly contested £22 billion blackhole, we finally got the detail – including some important changes for self-employed people up and down the country.

• Corporation tax rate of 25%, as well as Small Profits Rate and marginal reliefs, remain unchanged
• No change to Dividend tax rates and allowances
• Employer NICs increasing to 15% - with Employment Allowance increasing to £10,500
• Fuel duty frozen and temporary 5p cut extended for further year
• Capital Gains Tax increasing to 18% at lower rate and 24% at higher rate

Despite being highly critical of the measure when it was introduced in 2021 by the Conservatives, Rachel Reeves has not changed the freeze on personal tax allowance thresholds until 2028.  

Dubbed a ‘stealth tax’ by many, this measure sees taxpayers pulled into paying tax, or into paying tax at a higher rate due to the thresholds not rising in line with inflation – a phenomenon known as fiscal drag. 

Analysis of previous Budgets has revealed that this freeze has often offset any cuts to National Insurance or any other ‘giveaways’. 

As a result of today’s budget, many freelancers will still find themselves being pulled into higher tax bands until the thresholds begin to rise from 2028. 

Speculation ahead of the budget suggesting that fuel duty was to set to rise proved to be wide of the mark. Reeves instead kept the freeze on fuel duty for another year whilst also maintaining the temporary additional 5p cut for another year, too. 

For those businesses reliant on using a vehicle for work, it will come as welcome news that the price at the pump won’t be impacted by tax for at least the next year.

Although Employer National Insurance Contributions (NICs) aren’t chargeable on self-employed contracts, the tax still has important implications for people who freelance or own their own businesses. 

Let’s start with the headline rate; from April 2025, the rate of Employer NICs will increase from 13.8% to 15%. Meanwhile, the per-employee earnings threshold at which Employer NICs become chargeable will fall to £5,000, from £9,100. 

For freelancers who are thinking about expanding their business and taking on their first members of staff, the Employment Allowance – which currently lets eligible businesses discount their total NICs bill by up to £5,000 – can offset the impact of increases to the main rate. And from April 2025, the Allowance will more than double to £10,500, and eligibility expanded to cover employers with bigger NICs bills.

However, there are also thousands of freelancers and contractors who have been forced onto umbrella company payrolls due to IR35 rules. Unless they can negotiate a higher rate of pay with their end client, these contractors will see their take-home pay fall as they cover the cost of their umbrella company’s higher employer NI bill. 

As we warned in the media this week, it’s difficult to see how this doesn’t breach Labour’s pre-election pledge not to increase taxes on working people.

Much of the pre-Budget speculation focused on a potential hike to Capital Gains. Wealth managers have even reported a noticeable change in both pension contributions and tax-free cash withdrawals due to speculation about Capital Gains increasing and reliefs on pensions being removed. 

The lower rate of Capital Gains Tax will now increase from 10% to 18% from April 2025, while the higher rate will rise from 20% to 24%. 

If you’re planning on selling or closing your business down in the next few years, Business Asset Disposal Relief (BADR and formerly Entrepreneur’s Relief) will certainly be of interest. The lifetime limit remains at £1 million but Reeves has announced an increase from April 2025 on the rate that you pay. This will increase to 14% in April before rising to 18% from 2026/27. 

For freelancers and self-employed professionals with their own business premises – or those looking to open their first store, studio or venue – government has pledged more support to keep the cost of business rates down, particularly for those in the retail, leisure and hospitality sectors. 

Firstly, in 2025-26, the Small Business Multiplier for business rates will be frozen at 49.9p, with retail, leisure and hospitality premises being eligible for 40% relief up to a cap of £110,000.

And by 2026-27, government intends to establish permanently lower business rates for these businesses.

For those with second homes and landlords, the news that stamp duty will increase on buy-to-let residential properties and second homes, will not be welcome. From 31st October 2024, this will increase from 3% to 5%. 

Some political commentators have speculated this could have a knock-on impact on the availability of rented properties and could see rents rise as a result.

As promised in their manifesto, Reeves has kept the higher rate of Corporation Tax at 25% whilst maintaining the Small Profits Rate and marginal relief at their current rates and thresholds. 

Similarly, we heard no mention of Dividend Allowance, which will stay at £500 a year (just five years ago this was at £5,000!)

With Labour backing down from plans to introduce a flat rate of income tax relief on pension contributions, it was assumed that they may seek to reduce the amount you can withdraw as a tax-free lump sum.  

This would have been a big blow to contractors planning on using this lump sum to pay off their mortgage. Instead, the Chancellor has decided not to move the current relief on pensions contributions - with the limit remaining at £60,000 – whilst also keeping the amount you can withdraw as a tax free lump sum at 25% or £268,275 (whichever is lower). 

There were also no tweaks to ISAs, despite some speculation that these could be revamped to encourage greater use.