So what did the Spring budget deliver this year?
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).
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Why is this good news for Ltd contractors and another nail in the coffin for umbrella companies?
Simply put, the cost of engaging high earning contractors via umbrella companies has suddenly increased making outside IR35 engagements even more attractive for clients.
It is unlikely that umbrella workers who would otherwise have been engaged on an outside IR35 basis (but for incorrect advice or a risk averse client approach to IR35) will benefit from the increase in the National Insurance Primary Threshold and Lower Profits Limit.
Umbrella companies will remain responsible for deducting the additional employer’s National Insurance contributions to HM Revenue & Customs from 6 April 2022. Engaging contractors on an outside IR35/off-payroll basis cuts out the cost of umbrella companies and allows clients to attract the best talent to complete key projects.
Clients mistakenly assume that the use of umbrellas will de-risk an engagement. However, umbrella companies are not true employers, are deeply unpopular with contractors, remain unregulated and are mired in scandal. The model of paying annual leave on a rolled-up basis and withholding 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 IR35 is for clients to take reasonable care in undertaking status determination statements and assignment paperwork. IR35 Pro offers this service, taking full responsibility for end-to-end management of IR35 for our clients, with expert legal knowledge. By satisfying reasonable care, we are able to discharge the risk and liability to the fee payer, typically the MSP or Recruiter.
Find out more about our service here.
