Budget 2017: The Government’s attack on the self -employed will stifle entrepreneurship and discourage those who want to go it alone.
The self-employed and company directors have once again come under fire in the Budget, with the Chancellor seeking to reduce the gap between the amount of tax and national insurance (“NIC”) that an employee pays, compared to someone who is self-employed or a director of a small company.
The Chancellor quoted the example of an employee earning £32k who pays £6,170 in NIC (including employer contributions), whereas a self-employed individual on the same income will pay £2,300. Mr Hammond explained that the difference is no longer reflected in the state pension and benefits that are available to the two groups of taxpayers, and is reducing the gap which “undermines fairness” in the tax system.
Despite the manifesto pledge not to increase NIC, It was announced that the rate of class 4 NIC charged on the self-employed profits will therefore increase by 1% to 10% from April 2018, with a further increase of 1% from April 2019.
However, he confirmed that the previously announced abolition of class 2 NIC in April 2018 will go ahead.
Whilst it was clarified post-manifesto that the tax lock on NIC applied only to the employed, Mr Hammond is now experiencing a backlash from his own back benchers on the matter, with it also being cited by the media as a further attack on ‘white van man’.
The Chancellor also targeted those working in their own company who are benefiting from the £5,000 dividend allowance, meaning that they can withdraw up to £5,000 of dividends from their company tax free, in addition to their personal allowance.
He announced that the dividend allowance would reduce to £2,000 with effect from April 2018, increasing the tax burden for higher rate taxpayers by £975 and by some £1,143 for additional rate taxpayers.
I am sure we can expect further tax increases in this area, as the Chief Executive of the RSA has been appointed to consider the wider implications of different employment practices, and his initial conclusion that differing tax treatments are a key driver to how individuals carry out their business, has been quoted to justify the changes. His final report is expected in the summer, just in time for the first Autumn Budget!