Spring Budget 2017: Chancellor takes aim at self-employed "tax breaks"

Chancellor Philip Hammond announced tax rises for the UK’s growing group of self-employed yesterday to reduce what he regards as “unfairness” in the system.

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The UK Treasury forecasts lower rates of National Insurance paid by the UK’s record number of self-employed workers will cost public finances over £5 billion this year alone.From April 2018 when Class 2 NICs are abolished, the main rate of Class 4 NICs for the self-employed will increase by 1 per cent to 10 cent, with a further 1 per cent increase in April 2019.Mr Hammond expects that by 2021–22, the move to bring the two employee groups into closer alignment will see the self-employed paying just 60p a week extra. He also expects all self-employed people earning less than £16,250 to see a reduction in their total NICs bill.

NIC differentials unfair

With people choosing working practices according to tax treatment in his sights in this budget, the Chancellor said that differences in taxation between the two groups are “no longer justified” due to changes in the state pension.“Historically, the differences in NICs between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits,” Mr Hammond said.“But with the introduction of the new state pension, these differences have been very substantially reduced. Since 2016, self-employed workers now build up the same entitlement to the state pension as employees, a big pension boost to the self-employed.”

Taylor Review into gig economy for summer

In a nod to the potential backlash among Britain’s entrepreneurs – traditionally regarded politically by the incumbent Conservative party as the heart of British business – Mr Hammond sought to soften the blow in relation to parental benefits and other employment rights, such as statutory sick pay.He announced a government consultation in the summer on “options to address the disparities in this area as the FSB and others have proposed”. Led by Matthew Taylor, chief executive of cultural body the RSA, the remit of the review will be to consider the wider implications of different employment practices.

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Coupled with the reduction in the tax-free element of dividend profit, the NIC increases introduced in yesterday’s budget have prompted concerns that the moves will undermine the hardworking, just-about-managing demographic the government has previously said it is seeking to help, as well as limit innovation.Suren Thiru, head of economics and finance at the British Chambers of Commerce, said, “Many entrepreneurs and sole traders will be disappointed to see significant rises to their National Insurance bills over the coming years. Ministers need to ensure that these business people, who make a significant contribution to the economy, also get the recognition and benefits that correspond to their contribution.”On the reduction of the dividend allowance, Mr Thiru added, “Whilst the reduction is relatively small, this will come as a blow to many small business owners. Alongside changes to the tax system for the self-employed, the government risks undermining the UK’s entrepreneurial spirit.”

Opportunity to reframe self-employment benefits

There were more sanguine responses, for example from the professional body for HR and people development.Acknowledging the growing diversity of working practices and current employment and tax regimes inability to keep up, the CIPD’s acting chief economist, Ian Brinkley, said of the NICs increases, “The changes to National Insurance highlight the challenges associated with having a population that is working in increasingly diverse ways. With more people likely to become self-employed or involved in other forms of atypical employment in the future, the tax issues highlighted by the Chancellor will only become more problematic.“The Taylor Review into the gig economy provides a crucial opportunity to re-set the framework within which the labour market will operate in the future, and we look forward to working with Matthew Taylor's team to ensure that workers are given more clarity about their working rights.”

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