Striking the balance: company or self-employed?

The announcements in September’s not-so-mini-Budget have altered the balance between operating your business as self-employed or via a company.

In September, the new Chancellor announced a range of tax and other changes including:

  • The increases in corporation tax announced by former Chancellor, Rishi Sunak, and originally due to take effect next April will be scrapped. While the media focus was on the main rate staying at 19% rather than rising to 25%, there was a larger potential drop in the marginal tax rate for many small businesses (and no benefit at all for those with profits of up to £50,000).
  • Mr Sunak’s 1.25 percentage point increase to national insurance contributions (NICs) was also scrapped, this time from 6 November 2022 for employers, employees and the self-employed. Do not forget that if you are employed by your own company, that can mean a total saving of 2.5% NICs for you and your business.
  • From 6 April 2023, outside Scotland, the basic rate of tax falls from 20% to 19%.
  • Dividend tax rates will also drop from 2023/24 by 1.25 percentage points:
  • From 6 April 2023, the reforms to off-payroll working (often referred to as IR35) introduced in 2017 and 2021 will be withdrawn. This does not mean that IR35 is disappearing, to the disappointment of many. What the Chancellor’s move does is pass the decision about whether IR35 deemed employment rules apply from the employer to the individual worker. In theory, the underlying law remains the same. In practice, HMRC clearly expects many individuals to reach a different IR35 conclusion from their current ‘employer’, as revealed in a projected revenue loss of over £2bn in the medium term.

This set of changes means that from 2023/24, the financial balance between being in business on a self-employed basis or via a personal company will alter. In addition, the removal of the off-payroll reforms will give many people who are now classed as employees the opportunity to consider the self-employed/company alternative.

With so many factors involved – not just financial – advice is vital as the clock is already ticking to April 2023.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

21st October 2022