Today, the Chancellor of the Exchequer, announced the Spring Budget.
As widely reported, the planned increase in National Insurance contributions will proceed from 6 April 2022 despite inflationary pressures.
Employee’s National Insurance contributions will increase from 12% to 13.25% while employer’s National Insurance contributions will increase from 13.8% to 15.05% to help fund increased expenditure on the NHS. After April 2023 the increase will magically convert to a “Health and Social Care Levy” of 1.25% thereby perpetuating the increased cost for employees and employers alike.
To partially offset the impact of the increases, the Chancellor announced that the National Insurance Primary Threshold and Lower Profits Limit will increase from £9,880 to £12,570 from July 2022. It is claimed that around “70% of National Insurance contributions (NICs) payers will pay less NICs, even accounting for the introduction of the Health and Social Care Levy” (paragraph 2.11, Spring Statement 2022).
Why is this good news for contractors and a nail in the coffin for umbrella companies? Simply put, the cost of engaging high earning contractors via umbrella companies who don’t substantially benefit from the National Insurance Primary Threshold has suddenly increased therefore making outside IR35 engagements proportionately more attractive for clients.
Umbrella companies typically contract on behalf a of contractor with an employment businesses. An employment business then supplies the services of a contractor to a client. Clients mistakenly assume that the use of umbrellas will de-risk the engagement. However, it is often the case that umbrella companies are not true employers (Mr T Sodipo v My Locum 3202424/2018), are deeply unpopular with their ’employees’ and mired in scandal. The model of paying annual leave on a rolled-up basis and withholding payment of annual leave has been destroyed by recent judgments, notably Smith v Pimlico Plumbers Limited [2022] EWCA Civ 70.
The only means of managing risk in respect of the off-payroll legislation is for clients to exercise reasonable care in undertaking status determination statements. This can only mean taking legal advice for each engagement combined with ongoing monitoring. Clients within the scope of the off-payroll legislation must not be fooled into thinking that the duty to take reasonable care can be discharged simply by using the discredited and non-legally binding CEST tool or other online ‘solutions’ promoted by accountants and insurers.
Please contact Martyn Valentine, director of The Law Place Limited, on 07788 773871 or by email at martyn@thelawplace.co.uk if need any confidential legal advice or have any questions concerning the Budget.