As expected, all recent increases and planned increases to tax and national insurance have been reversed but there were a couple of surprise announcements from the mini-budget today.
The basic rate of tax is to drop from 20% to 19% with the additional rate of tax at 45% being abolished from April 2023.
The April 2021 reforms to IR35 are to be repealed from April 2023. Medium, large or group agencies will no longer need to assess limited company freelancers for their employment status for tax and deduct tax and national insurance from invoice payments for those assessed as being inside IR35. This had seen many freelancers move to permanent employment. Agencies that had to apply IR35 reforms saw their freelance costs rise due to increased rates to compensate for deductions and the employer national insurance cost.
As expected, national insurance for both employees and employers will fall by 1.25 percentage points from November with the tax on dividends decreasing by the same from April 2023.
Corporation tax is to remain at 19%, regardless of the profits made.
These changes are good news for agencies which have suffered from increased labour costs due to the cost of living, a lack of candidates, the increase in national insurance and IR35. Agency owners will benefit from the lower corporation tax, lower dividend rate and the additional rate of tax being abolished.