What 2024 for the UK’s flexible, contractor workforce is bound to bring

After an uncertain 12 months for the flexible workforce, 2024 will no doubt continue this rather unsettling trend -- even if the independent, contractor workforce itself is likely to expand and take up the slack for the UK economy.

Remember; we face the as yet unknown impact of two government consultations; it’s an election year and it’s still unclear what the future holds for the off-payroll working rules.

The UK’s system for employing temporary workers is still then, mystifyingly, quite a bit in flux, writes Matt Fryer, managing director of Brookson Group, a People 2.0 company.

General election 2024: a double-edged sword

However, the election itself could force the parties and their MPs to reach out to their self-employed, contractor constituents, potentially with appealing policies to boot.

The introduction of government policies to help contractors, and proposed but significant investment in infrastructure, further mean 2024 could be a year of opportunity if you’re a flexible worker.

Anyone considering the change to self-employment might therefore find 2024 is ‘as good as it gets’ -- pending of course the 'holy grail' of a freelance-friendly government either emerging or coming to power.

Financial policies should leave contractors with greater take-home

Let’s start with what we know.

A number of tax and financial measures were announced to incentivise the self-employed in November’s Autumn Statement 2023. When these measures come into force this year, temporary workers will be rewarded with a larger proportion of their earnings. 

From April 6th, the government is reducing the main rate of Class 4 self-employed NICs from 9% to 8% and Class 2 self-employed NICs will be axed altogether. The result of both will be a much simpler tax system, and the measures will save workers a considerable amount of money while they continue to receive access to state benefits such as state pension, through a ‘National Insurance credit.’ 

As a further boost, those that are employed via an umbrella company will further benefit from the 2% decrease in Employee National Insurance that is being introduced imminently -- from January 6th 2024. 

Are you inside IR35?

These measures will make flexible working more attractive for all, in particular those who find themselves working inside IR35, and finally grant access to the kind of benefits that they might expect.

For these members of the workforce, it’s important to think carefully about how you are employed, but the decrease in Employee NI is certainly a strong advantage that could sway people to work via an umbrella company. 

But is it enough to compensate for being classified as falling inside IR35?

A boom in infrastructure and investment means greater demand for flexible workers

In November, Jeremy Hunt also promised to speed up the planning system for Nationally Significant Infrastructure Projects, saying he will invest billions in regeneration projects, manufacturing capabilities for clean-energy sectors and public sector engineering, including £36 billion into transport projects. 

The resulting work in the engineering and manufacturing sectors will require a large and accessible pool of skilled flexible workers that can be distributed across the country and internationally to complete the work at short notice, often for varying lengths of time. 

This is great news for flexible but professional contractors of all hues, who will be in no short supply of work.

The greatest stress-test yet for contractor working arrangements?

That said, this stoking of contractor demand from transport to tech will likely highlight the complexities of the current IR35 status determination process. Perhaps one of those helping hands HMRC has extended to contractors which I mentioned at the outset -- namely; improved guidance on contracted-out services under the IR35 off-payroll rules -- has been signed off and made available to contractors, consultancies and clients, just in time.

For contractors working via umbrellas, ensuring the umbrella company is fully compliant will be of paramount importance in 2024, when the client (the end-hirer) is frequently changing.

On the other hand, those contractors with PSCs will need to have guarantees from every hirer that they are being classified correctly as being inside or outside IR35, and when a job is overseas, this can become even more complex. Almost needless to say, professional advice from a trusted, qualified, experienced adviser ought to be strongly considered here, if that’s going to be you.

Remember in 2024, IR35 and umbrella company regulations are set to change

Also as mentioned at top, two government consultations that took place in 2023 have the potential to significantly shake-up the UK’s contracting landscape in 2024.

The first has already been confirmed. It’s a new IR35 offset rule, which comes into effect on April 6th, and it will reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off payroll working rules.

In other words, HMRC will not tax employers more than it should, thereby reducing the risk of engaging flexible workers via a PSC by up to 50%. This is likely going to lead to more opportunities for contractors to go down this commercial, business-to-business engagement model, which offers greater autonomy, tax efficiency, and control over working practices for the worker.

The real shoe we’re waiting to drop….(is worth checking back for in the spring)

The real shoe we’re wating to drop, though, is in the shape of the umbrella regulation consultation.

Its series of proposed measures could lead to a widespread return to the engagement of PSCs by end-hirers, while also reducing the risks for PAYE contractors of working via an umbrella companies.

The final brolly regulation measure settled upon by the government will need to be precisely targeted however, so as to not to disturb genuine, bonafide umbrellas or disproportionately add to the administration burden of contractor recruitment agencies.

Sunak has now called 2024 a general election year

Yesterday, prime minister Rishi Sunak said his “working assumption” is that a general election will be held in the “second half” of this year. Technically, he could have gone to the polls as late as January 28th 2025.

While his non-committal intervention seems to wrongfoot the many who were expecting a May election, it remains the case is that some consultation ‘proposals’ might not get passed into law as ‘measures,’ if the current administration is ejected.

As the polls now edge closer thanks to Mr Sunak speaking out, the current government has proposed to tackle tax non-compliance by introducing a package of measures against avoidance. Chief among them is “tougher consequences for promoters of tax avoidance schemes,” and a new power enabling HMRC to bring disqualification action against directors of companies promoting tax avoidance, including those who control or exercise influence over a company.

Tougher action against avoidance promoters will be agreeable to most

Although nothing has been put into action yet (draft legislation and explanatory notes by HMRC are the latest update – here), more effective compliance measures would be welcome. Broadly speaking, such measures would reduce the risks of working with those ‘umbrella companies’ which continue operating today but see contractors lose out on their take-home pay, and even make such hard-working individuals face tax/legal consequences from being taken in by abusive schemes and arrangements. 

The combined effect of all these recent consultations or still-to-be concluded consultations (i.e. the dual-move against avoiders; incoming rules around brollies and the IR35 set-off), could make dealing directly with PSCs less risky and more attractive for end hirers.

Blanket bans banished, a resurgence in limited company working, and other hopes

The upshot of this triumvirate could potentially even herald an end to ‘blanket bans’ on PSCs, thereby opening up the opportunity for more contractors to work outside IR35, and enjoy the benefits that this brings.

To learn more, we will have to wait for the government’s follow-up report on umbrella company regulation, which we expect to be released in the spring. Possibly, that follow-up could hopefully even be released alongside Spring Budget 2024 on March 6th.

But in the spirit of proactivity, contractors would be wise to take into consideration the possible shift to PSC working now, by putting themselves in the best possible position to benefit from a resurgence of outside IR35 engagements. And with the general election guaranteed for 2024, could we see even further changes to IR35 and umbrella regulation?

General election 2024 will put power into the hands of the flexible workforce

Whenever it happens; June, after the summer recess -- or even Autumn 2024, the election gives the flexible, contractor workforce a voice that many say has been lacking for far too long.

The election manifestos of at least the ‘big three’ parties will make interesting, potentially pivotal reading.

Labour has already stated its intention to extend sick pay, holiday pay (plus other benefits) while tightening discrimination and whistleblowing laws for the self-employed. The opposition has promised too to introduce a Single Enforcement Body to enforce standards among umbrella companies. 

Labour’s ‘worker’ status proposal will have its most vocal supporters yet in 2024

Potentially more significant -- even possibly a vote-winner to those embattled with IR35 -- is Labour’s proposal to replace the current three statuses of employment with a single status of ‘worker,’ for any engagement that is not considered ‘genuinely self-employed.’

With clarity and simplicity around the boundaries of these two statuses, both end-hirers and contractors could benefit from less reliance on IR35, and we could see end-hirers becoming more confident in engaging contractors they consider to be wholly self-employed.

The downside could be an increase in tax avoidance schemes that IR35 was first introduced to counteract, so workers would need to take this into consideration. 

Tory pre-election tax treats could include the unthinkable: off-payroll repeal

But what to expect from the current administration? The Conservatives are likely to use Spring Budget 2024 to reveal some ‘big gun’ policies that can turn their fortunes around. While these are likely to centre on tax or financial treats for swathes of the electorate, a repeal to the off-payroll legislation cannot therefore be ruled out.

A whole new system for contractors and their hirers to navigate isn’t that inconceivable when you consider that the repeal of IR35 reform that never was emerged from HM Treasury’s then-boss just 16 months ago.

Might we even see a shift towards the Employer of Record, or Agent of Record models that are already used by lots of other countries?

Finally, fortune (and opportunity) often favours the flexible…

Nothing is certain yet – and that’s perhaps the big weakness and threat for contractors in 2024. But the flexible, contractor workforce will likely play an important role in the general election and with this and existing policies waiting to come to fruition, contractors could find themselves in a much stronger position by 2025.

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Written by Matt Fryer

Matt is a Chartered Tax Advisor with 18 years' experience of advising on tax planning and compliance. Matt has been with Brookson since 2009, having previously worked for Big 4 accountants, KPMG and PwC. Matt’s primary role is to ensure that the services provided by the Brookson Group comply with relevant legislation and regulatory requirements. Matt is also a Board member of the FCSA, the UK's leading membership body dedicated to promoting supply chain compliance for the temporary labour market.

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