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Budget 2017: self-employment and all that

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The chancellor of the exchequer, Philip Hammond, delivered his first Budget on 8 March. The CIOT and Institute for Government were quick to praise the relatively small number of new tax measures, which they hope marks the start of the ‘do less and do it better’ approach advocated in January’s Better Budgets report.

The headline announcement was an increase in the main rate of class 4 NICs from 9% to 10% in April 2018, followed by a further step up to 11% in April 2019. This is the government’s first move towards closing the gap between the employed and self-employed, as the broader review of employment practices gathers pace. The abolition of class 2 NICs will still go ahead in April 2018, but in creating winners and losers, the policy comes ‘dangerously close’ to breaking the government’s commitment not to increase rates of VAT, income tax or class 1 NICs over the lifetime of this parliament, as Jill Rutter, programme director at the Institute for Government, pointed out. A number of the chancellor’s own colleagues feel the same way and are likely to say so in the Budget debates. The combination of abolishing class 2 and increasing class 4 is expected to raise £145m a year by 2021/22, the chancellor said.

Stephen Herring, head of taxation at the Institute of Directors, said of the class 4 change: ‘It will not be an easy road to travel down, as there will be many contractors, traditionally self-employed occupations and, yes, entrepreneurs who will pay more in NICs because of it. Nevertheless, the increasingly flexible economy means that the journey must be made.’

John Cullinane, CIOT tax policy director, commented: ‘If the government truly intends to level the playing field, the big factor is employer’s national insurance contributions. That is the “elephant in the room”, which went unmentioned by the chancellor today.’

Another big announcement was a cut in the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018. As the chancellor put it, this is intended ‘to address the unfairness around director/shareholders’ tax advantage’. It will also raise £2.6bn over the next five years.

As many had hoped he would, the chancellor announced that businesses below the VAT registration threshold will benefit from the delayed introduction, until April 2019, of ‘making tax digital’ quarterly reporting.

The chancellor also confirmed that new penalties for enablers of tax avoidance schemes will be introduced from the date of royal assent to the Finance Bill. This is due to raise £115m over the next five years. Reflecting the concerns expressed by many professional advisers over the new penalties, Jason Collins, head of tax at Pinsent Masons, said: ‘HMRC is likely to have a working list of who they want to target first with this measure. By the looks of it, QCs, small accountancy firms, law firms and boutique advisors will be in their sights.’ Stella Amiss, tax partner at PwC, was more conciliatory, commenting: ‘The government has worked to ensure there is greater clarity in its proposals and that they are appropriately targeted and proportionate. The government recognises taxpayers need to access tax advice that helps them understand and comply with tax rules.’

Five measures were introduced with immediate effect from 8 March:

  • legislation to prevent businesses converting capital losses arising on appropriations to trading stock into trading losses;
  • a 25% tax charge for pension transfers to a qualifying scheme abroad, unless a need for the transfer can be demonstrated;
  • extending the legislation on profits from trading in and developing land in the UK to include pre-existing contracts;
  • ensuring that promoters of tax avoidance schemes can’t circumvent the POTAS rules by either sharing control of a promoting business or putting a person or persons between themselves and the promoting business; and
  • updating the IPT anti-forestalling rules.

The soft drinks levy final rates were confirmed at 18 and 24 pence per litre for the main and higher bands respectively.

The government has also announced no fewer than 18 consultations and calls for evidence to take place between now and the summer, all listed in Annex B of the Budget overview document.

The Finance Bill 2017 will be published on Monday 20 March. Next Budget: Autumn 2017.

Issue: 1345
Categories: News