It feels like the speculation we see in the run-up to Budget statements becomes more frenzied with each passing year, writes Fred Hicks, director of policy at IPSE.
What's in and what's out changes from one fiscal event to the next
It can be wearying keeping up with what measures are 'in' and what measures are 'out' in the chancellor of the day's eyes.
And it creates huge uncertainty for businesses — so much so that some political and economic commentators are calling for the Budget to be scrapped altogether.
Contractors have become outliers of the Budget's certainty
Fortunately, the annual Budget statement is the moment that the speculation ends, and real planning for the future can begin. Unless you're a freelancer or contractor with a limited company, that is.
For people working through their own incorporated business, each fiscal event now feels like another round of improvisation that leaves such individuals worse off. Governments keep moving the goalposts on contractors' pay without any clear sense of purpose or recognition of how vital they are to the economy.
What 'LTD' brings to the table is why it's worth protecting
In sectors built on agile, project-based work — such as Technology/IT — a limited company remains the most effective and professional route.
A limited company signals:
- Accountability;
- Protection of the director's personal assets, and
- The drawing of income by the director in a way that supports the 'ebb and flow' of contract work, which in turn supports the 'peaks and troughs' of business demand.
The limited company model suffers continual policy disruption
But the limited company (as a model) is being continually undermined by government policy, especially at Budgets.
The most disruptive example is IR35 and the off-payroll working rules.
What began as an attempt by HMRC to deal with "disguised employment" has evolved into a regime that repeatedly shifts responsibility for tax status, pushing risk back and forth between contractors and clients.
IR35 has imposed zero-rights employment on directors
The 2021 reforms to IR35 moved the burden of determining status onto private sector clients, and in doing so, encouraged widespread risk-aversion across the supply chain. The same happened when the rules debuted in the public sector in 2017. In both sectors, many contractors now find themselves treated as employees for tax purposes while receiving none of the rights or protections that ordinarily go with employment.
Out of the IR35 frying pan into the dividends fire
For those resilient contractors left standing after the off-payroll reforms, their modus operandi has been eaten away on another front.
I'm referring here to the constant erosion of dividends that is today prompting limited company contractors to question what the future holds for their businesses.
From whittling down the tax-free allowance to raising the basic and higher rates at last week's Budget 2025, the government's appetite for dividend raids is insatiable.
Three questions that the 2% dividends increase poses
In light of the chancellor's two percentage point increase to the basic and higher rate dividend bands, three questions arise:
- How much further will the government go on dividends?
- Does government understand why freelancers incorporate?
- Does government even want freelancers to own companies?
We can take a guess, but ultimately, we don't actually know the answers to these three questions. And it's entirely possible that the government doesn't know the answers, either.
Erratic tinkering is making the freelance proposition unstable
This lack of consistency and direction erodes confidence.
Businesses need predictable frameworks to plan, and contractors are no different. When the rules governing salary, dividends, employment status and client responsibilities change time and again, the entire proposition becomes unstable.
Over time, this inconsistency also influences the broader market, as nervous end-client organisations turn to permanent hires or large consultancies instead.
Our view at IPSE? It's nothing short of a disaster for an economy that is struggling to grow.
The truth about contractors
Contractors do the work that the economy needs, often stepping into complex projects at short notice and delivering outcomes that organisations cannot manage in-house.
Contracting is a way of working that comes with risk, and we can't eliminate that — it's the life you sign up for as a contractor, and these professionals have always embraced that.
Lastly, here's the mindset that the government needs to adopt…
A better approach would start with a simple principle — accept limited company contracting as an essential part of doing business and design policy accordingly.
That means painting a clear picture of the regulatory path ahead, simplifying rules and ensuring that future changes aren't making contracting more trouble than it's worth.
Contractors just want to get on with running their businesses. Government should let them.
Short-sighted muddying, with muddled contractor policies, must stop
Still, UK policymaking should be aiming to make contractors' futures clearer, or at the very least not muddy them further. And with an entire UK workforce that increasingly values independence and autonomy, government certainly shouldn't be trying to force people's hands away from that.
But short-sighted raids on contractor take-home pay are reducing the flexibility that this way of working is built on, while undermining the availability of flexible, specialist talent in the public and private sectors.
What frustrates us most at IPSE is that government has so much to gain by working with the freelance labour sector, rather than against it.
