The Labour Autumn Budget announcement has stirred up quite a conversation…

Now that the dust has settled and things are a little clearer, you may be wondering what it all means.

Whether you’ve been self-employed for years or you’re on the cusp of transitioning out of a full-time role, understanding the key points from this budget is essential for planning your next steps.

So, what does the 2024 Autumn Budget mean for our community of L&D Free Spirits? Let’s dive in and explore the key takeaways.

Tax Adjustments: A Mixed Bag for the Self-Employed

The headline item for most self-employed professionals is the adjustment to income tax thresholds. While there’s relief for lower earners with a small increase in the personal allowance from £12,570 to £13,000, higher earners will face a squeeze. The freezing of higher tax bands until 2028 effectively means that more of us could be pushed into higher tax brackets as our income grows — a stealth tax rise by another name.

According to the Office for Budget Responsibility (OBR), this freeze is projected to bring in an additional £3 billion per year, impacting around 1.2 million taxpayers who will be dragged into the higher rate threshold by 2026.

What this means for you:

• If your income fluctuates, as it often does for freelancers, this could mean more of your earnings are taxed at higher rates. Be mindful of the impact on your take-home pay, particularly if you’re planning for a strong quarter in the new year.
• For those considering moving out of employment and into self-employment, the initial savings from the personal allowance increase could be a small boost, but the longer-term impact should be factored into your financial planning.

Tip: If you’ve done a forecast for 2025, make sure you revisit it and adjust as necessary. Don’t worry if you haven’t done a forecast yet; start with revising your budget to account for potential tax increases. It may be worthwhile consulting with a financial advisor or your accountant to understand the implications for your specific business situation.

National Insurance Changes: New Pressures on Profit Margins

The increase in National Insurance contributions (NICs) for self-employed individuals has been positioned as a way to bolster public services, but it adds another cost pressure for small businesses and freelancers. NICs for Class 4 contributions are set to increase by 1.25%, taking the rate up to 11%, while the dividend tax rate for limited company directors will rise by 1%, bringing it to 10.5%.

This increase is expected to generate an additional £5 billion annually, but it’s a blow for those of us who operate on tight margins. If you pay yourself a mixture of PAYE and dividends, you’ll feel the impact of both changes. The higher NICs will hit your PAYE income, while the dividend tax rise will reduce the amount you take home from your company profits.

What this means for you:

• The increase in NICs may cut into your profits, making it harder to reinvest in your business or even just cover rising costs of living, which have increased by 8% year-on-year according to the latest Consumer Price Index data.
• If you’re currently employed but considering going solo, this might make the jump feel riskier. It’s important to have a clear picture of your expected earnings and how these changes could affect them.

Tip: Review your current pricing strategy. You may need to increase your rates in 2025 to maintain profitability. Be transparent with your clients about rising costs — according to the Federation of Small Businesses (FSB), 60% of small businesses are planning price increases due to higher operating costs.

Support for Small Businesses: Promises of Relief, But Will It Be Enough?

The government’s language around supporting small businesses and freelancers was strong, with pledges of £1.2 billion in new funding for skills, innovation, and infrastructure. However, many of these measures are longer-term and may not provide immediate relief.

What this means for you:

• If you’re in the early stages of your freelance journey or running a small L&D business, the promised support might not translate into tangible benefits just yet. A survey by IPSE (the Association of Independent Professionals and the Self-Employed) found that 72% of freelancers felt government support during the pandemic was inadequate, and similar concerns remain about accessing these new funds.
• Established freelancers might find that while there are new schemes on the horizon, they require significant effort to navigate. Balancing this against billable hours can be a challenge.

Tip: Stay informed about new grants and funding opportunities as they become available. Joining local business groups can be a great way to hear about opportunities early and get advice on how to apply.

The Cost of Living Crisis: A Challenge for Client Budgets and Your Business

The budget’s focus on tackling inflation and the ongoing cost of living crisis is a reminder that client budgets are still under pressure. With inflation projected to remain above 5% until mid-2025, many companies will be looking to do more with less, and this will inevitably affect those of us who offer training and consultancy services.

What this means for you:

• You may find clients are more cost-sensitive or looking for ways to cut back on spending, which could impact the demand for your services. According to the Learning and Performance Institute’s Annual Survey, 68% of L&D departments reported budget cuts or freezes for 2024.
• On the flip side, companies may be turning to freelancers as a flexible, cost-effective alternative to hiring full-time staff, presenting new opportunities for those ready to adapt – so it’s not all doom and gloom.

Tip: Refine your value proposition to emphasise flexibility and cost-effectiveness. Consider offering packages or solutions that align with clients’ tighter budgets while still demonstrating strong ROI.

What’s Next? Navigating Uncertainty

The changes in the Autumn Budget highlight the ongoing instability faced by self-employed professionals and small business owners. As the landscape shifts, it’s crucial to stay agile and be proactive in adjusting your strategies.

Whether you’re an established freelancer or thinking about making the leap from employment, there’s no time like the present to take stock of your business. Use this period to revisit your business plan, review your financial health, and explore ways to diversify your income streams. And remember, you’re not alone in navigating these changes — the L&D Free Spirits community is here to support you.

At L&D Free Spirits, we’re dedicated to helping self-employed professionals and small business owners thrive, even in uncertain times. If you’re looking for more insights, practical advice, or simply want to connect with like-minded individuals, join us at our next Challenge Hour or webinar.

This article provides an overview based on current information available from the 2024 Autumn Budget. For personalised advice, consult with a financial advisor or your accountant.

Article written 09/11/2024.