No.11 'Read my lips. No new taxes'

No.11 'Read my lips. No new taxes'

From:  
A broken manifesto pledge, tax rises for the UK's hardest working people and a staggering u-turn. The final spring budget was full of spectacle.
The Chancellor Philip Hammond echoed George Bush Sr.’s infamous broken promise on March 15th after mounting pressure forced him to commit to this Conservative Manifesto pledge.
 
At lunchtime, on 8 March Mr Hammond opened his first Budget by delivering a potential body blow to the UK’s 4.8m self-employed.
 
Mr Hammond announced that Class 4 National Insurance contributions would go up to 11% by 2019. This, according to the Chancellor, was to create a more even fiscal playing field between the self-employed and the employed.
 
Just seven days later, at lunchtime on March 15th, Chancellor Philip Hammond performed one of the most staggering U-turns in contemporary British political history.
 
"In light of what has emerged as a clear view among colleagues and a significant section of the public I have decided not to proceed with the Class 4 NIC measures set out in the budget."
 
Despite support from a small number of economic think tanks, the Chancellor faced a barrage of criticism from his backbenchers unwilling to pull the wool over the eyes of their constituents, tabloid newspapers for bashing the “white van man”, and no doubt the Prime Minister concerned with the tarnishing of her “on the side of working people” brand.
 
There was also a concerted public affairs effort from IPSE, with a litany of television appearances, print publications, and contact with key policymakers. There was also uproar from our members and the rest of the UK’s self-employed.
 
The Chancellor rightly celebrated the current levels of record low unemployment but seemed to ignore the increase in the number of selfemployed.
 
But it is well worthwhile reflecting on what was said at the Budget because it shows a troubling mindset from some within the Treasury and their advisors.
 
Addressing Parliament on 8 March, the Chancellor rightly celebrated the current levels of record low unemployment but seemed to ignore the increase in the number of selfemployed, which now represents 4.8 million people, nor acknowledge that this growing sector has been a key driver of our economy's relative success since the financial crisis.
 
He also slashed the Dividend Allowance while only putting a delay on ‘Making Tax Digital.’ But some crumbs of comfort were offered, including a consultation into parental benefits for the self-employed.
 
For those of you working through your limited liability company, the Dividend Allowance has been slashed from £5,000 to £2,000, as of April 2018. For IPSE members who pay themselves a salary somewhere around the personal allowance, and pay themselves £50,000 in dividends, this will result in an additional £225 of tax liability. The Dividend Allowance only came in last year, so this tinkering with the tax system from the Chancellor won't do any good for business confidence.
 
The fact that Class 2 NICS would be abolished, of really only to some lower earning selfemployed, had been flagged up back in 2016.
 
However there was some good news on the tax side of things, as the Government confirmed they would increase the personal allowance by more than inflation for the seventh consecutive year, raising it by £500 to £11,500 in 2017/18. We expect this to rise by £500 every year up until 2019/2020, in line with the pledge to raise it to £12,500 by the end of the Parliament, but don't know this for sure.
 
Corporation Tax on company profits will, as planned, fall from 20% to 19% from April and by 2020 the rate is planned to fall to 17%. The VAT registration threshold will increase from £83,000 to £85,000 this April 2017, with the deregistration threshold increasing from £81,000 to £83,000.
 
Those using the VAT flat rate scheme should be aware it gets significantly less generous from April. Businesses with limited costs (we imagine many IPSE members will be limited cost traders for the scheme) can still use the Flat Rate Scheme, but their percentage will be 16.5%. So if they sell £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%).
 
In another glimmer of good news, the government also announced a consultation into bringing greater parity between parental benefits for the self-employed and employed, to take place this summer. Currently, if you are an employee, you are eligible for "Statutory Maternity Pay" (SMP). This is set at 90 per cent of average weekly earnings for six weeks and then drops to £138.18 for 33 weeks. In contrast, the self-employed may be eligible for "Maternity Allowance" and receive £138.18 for 39 weeks. This came as a recommendation as part of the Deane Review into self-employment in 2016, which IPSE contributed to, so we're not sure another review is necessary, but it's welcome the Government is taking notice.
 
A full breakdown of all tax changes highlighted here can be found in the Budget analyses on IPSE's website.
 
It has been our strongly held belief that the current system is too complex. We have demanded a fairer, transparent and uncomplicated tax system be introduced for the UK’s self-employed.
 
Along with a fairer, clearer tax system, IPSE is calling for clarification on employment status, so people are afforded the rights and benefits they deserve.
 
To put it quite simply we want our Nineteenthcentury tax system updated to accommodate our Twenty-first century workforce.
 
Our worry about Mr Hammond’s Budget announcement of 8 March is that the Chancellor seemed to have made up his mind about the tax system for the self-employed before consulting with the people it would damage.
 
It seemed the Chancellor had somewhat preempted Theresa May’s Taylor Review into how business employment practice needs to change in line with modern business models.
 
We will, as the UK’s biggest membership organisation for the self-employed, work with the Treasury and Matthew Taylor and his review team.
 
IPSE, recognise that the self-employed are a diverse group. From knowledgebased consultants working through limited companies, to “white van men” and the entrepreneurs behind our next big companies. The self-employed help foster innovation, generate wealth and endow our economy with unique flexibility.
 
New forms of employment practices, driven by technological developments, have blurred the lines of existing employment statuses. Along with a fairer, clearer tax system, IPSE is calling for clarification on employment status, so people are afforded the rights and benefits they deserve, while the flexibility so valued by the self-employed and the market is protected.
 
While disappointed with the Chancellor’s Budget, we applaud Philip Hammond and his party’s courage in listening, heeding and responding.
Politics