Self-employed take a hit in the Budget

Filing invoices

How nice to see self-employed people get a higher profile in the 2017 Budget.

And how disappointing that it’s all about raising their taxes.

As I type this, I’m listening to lots of angry  self-employed people on radio phone-ins.

National Insurance

Sole traders pay two types of NIC at the moment. One is class 2, a flat £2.80 weekly charge which contributes to your NI record.

The other is class 4, which kicks in if you have about £8,000 profits from the business. It’s like an extra 9% income tax for sole traders.

Class 2 will be abolished from April 2018, so I’ve been waiting to see when the Chancellor will try to get more money off sole traders to compensate. And today he announced class 4 will be increased to 10% from April 2018, then 11% from April 2019.

This brings NI percentages much closer to employee class 1 NICs at 12%.

Dividend allowance

For people running their own limited company (like I do), there are two ways money comes out of the company into my pocket. First, the salary the company pays me, and second the dividend which can be paid from the company to the shareholders of the company.

George Osborne introduced a new dividend tax last year, to stop directors paying themselves a small salary and large dividend as a way of saving tax. He also said everyone could take the first £5,000 of dividends free of the dividend tax. That’s known as the £5,000 dividend allowance.

Chancellor Hammond today reduced that £5,000 dividend allowance to £2,000 from April 2018.

Making Tax Digital

This massive HMRC project (read more here) will make businesses report income and business expenses using special software every three months. It was due to start in April 2018 for sole traders and landlords. Now it will start in April 2019 for businesses with a turnover below the VAT threshold (currently £83,000).

This gives breathing space for HMRC to actually get their act together, and tell us all how this new tax reporting system is supposed to work. They’ll also have to explain why we are likely to have to buy (yes buy) commercial software in order to pay our tax.

[Update: There’s a nice outline of the new timetable from TaxAssist Accountants here: Changes to MTD timetable >]

Anything else?

There are two reports coming out in the summer which will be of interest to self-employed folk.

The first is Matthew Taylor’s report on how work, contracts, payments and taxation need to be reformed for the 21st century. This will deal with the Uber/Deliveroo ‘gig economy’ workers who don’t fit in to current binary model of employment/self-employment.

The other report will be on ways of changing parental benefits so that they will help self-employed people starting a family. Currently employed people get a lot of support, self-employed people not so.

General thoughts?

It feels like a raid on self-employed people and people running their own small companies. To say that it’s fairer to tax self-employed people like employed people ignores the fact that the self-employed take on more risk and already get fewer benefits.

Let’s see whether other reforms to benefits will redress the balance.

Posted on 08 March 2017

What do you think?