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Budget: Enterprise & Self-employed

Self-employed pay price but MTD delayed

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Self-employed workers will pay more national insurance in a move to bridge the differential with the employed.

There is also a delay to the introduction of quarterly digital returns.

Class Two NI contributions will be scrapped next year and Mr Hammond said Class 4 contributions will rise by 1%, and by a further 1% in 2019.

Combined, the effect of this change will cost each self-employed person 60p per week and raise £145m “for public services.”

But the move was condemned for deterring individuals setting up in business and for failing to acknowledge the risks taken by those working for themselves.

Andy Willox, the FSB’s Scottish policy convenor, said: “Today the Chancellor chose to put extra pressure on hundreds of thousands of Scottish self-employed people.

“Increasing the tax burden on plumbers, cleaners and musicians, while decreasing corporation tax isn’t the right move. Many people who work for themselves have relatively modest incomes and don’t get paid holidays and sick pay like employees.”

Lucy-Rose Walker, chief executive of the incubator Entrepreneurial Spark, said: “Increasing National Insurance rates for the self-employed could be a further step by the Government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great.

“We believe there should be more, not less, support for entrepreneurs who are starting and scaling businesses. Removing the few remaining incentives of being self-employed is counter-intuitive and will lead to fewer enterprises and consequently fewer jobs.” 

Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants (ACCA), said: “While it is great to see that the government has listened to the concerns of the business community with regard to business rates and the upcoming rollout of Making Tax Digital (MTD), ACCA is concerned that an increase in the NIC for the self-employed will be harmful for UK growth and entrepreneurship.”

“Self-employees are subject to a lower national insurance contribution (NIC) because they do not receive the same entitlements and benefits as their employed counterparts – such as holiday and sick leave. Before this tax is raised, the government needs to think carefully about ways to align the level of benefits.

“The government still has time to do this, as the increase will be phased in over two years. I look forward to hearing more about how it intends to address the issue of parental entitlements.

“In a time when we are trying to encourage innovation and create a Britain that is ‘open for business’, we should not be creating barriers to entrepreneurship and self-employment.”

Nigel Green, chief executive of deVere Group, said: “This tax grab will hit millions of Britain’s hardworking entrepreneurs. This group of self-reliant people are the lifeblood of the economy. They take on the risks and expense of running a business, whilst simultaneously creating jobs and wealth.

“Hiking taxes on the self-employed punishes ambition and undermines aspiration to get on in life. 

“Slapping on extra penalties and putting up additional barriers disincentivises people from launching new enterprises.”

He continued: “Placing extra burdens on the self-employed will, I believe, turn out to be a masterclass in the law of unintended consequences. It will backfire by further reducing the tax base to even fewer people. “

Tim Walford-Fitzgerald, Private Client Principal, HW Fisher & Company, said: “By announcing increases to Class 4 national insurance for the self-employed from 2018, the Chancellor has reduced the tax differential between the employed and self-employed.

“But narrowing the tax difference does nothing to reduce the inequality of rights enjoyed by those working for themselves compared to people in stable employment.

“The regular wage slip is a world apart from the increased risks and uncertainty involved in running your own business.

“These tax changes do not reflect the practical distinctions between employment and self-employment.”

Sam Dumitriu, head of projects at the Adam Smith Institute, said: “It’s right to bring National Insurance on the self-employed in line with that paid by employees. The current system is in effect a subsidy of £1,240, and although the self-employed do have mildly reduced access to some contributory benefits, given the choice almost everyone would plump for the £1,240.

“But the Chancellor must ensure he is not discouraging the self-employed from investing – and allow them to immediately deduct capital expenditures from their taxable income. We shouldn’t be looking to increase the overall tax burden – especially not on low income workers. So we should use the extra revenue raised to cut the overall National Insurance rate.”

Delay to Making Tax Digital timetable

On the delay to Making Tax Digital, Andy Willox, the FSB’s Scottish policy convenor, said: “The decision to delay the quarterly tax reporting requirements for firms underneath the VAT thresholds buys both our smaller firms and his government a little bit of time. 

The Chartered Institute of Taxation (CIOT) said that the decision to delay the introduction of Making Tax Digital (MTD) for small businesses by one year to April 2019 would provide small businesses in Scotland with more time with which to familiarise themselves with the requirements of the scheme and ease the transition to compulsory quarterly online reporting.

Moira Kelly, chairman of the CIOT Scotland technical committee said: “There has been considerable disquiet over the UK Government’s timetable for the implementation of Making Tax Digital so the Chancellor’s decision to defer its introduction for the smallest businesses represents an acknowledgement of the concerns felt by many businesses and organisations across the country.

“For businesses in Scotland, this will be a very welcome boost, providing them with more time with which to familiarise themselves with the requirements of MTD and ensuring that they have more time with which to obtain the appropriate software and advice with which to manage the transition.

“Not withstanding this very welcome boost, there will be many businesses in Scotland who are likely to be hampered in their efforts to move to digital record keeping, regardless of their size, by the lack of appropriate digital infrastructure, such as superfast broadband.

“It will be important for HMRC to step-up its efforts to engage with all of those who are affected by the move to digital record keeping – businesses, agents, professional bodies and software companies – to ensure that a collaborative approach delivers in the interests of all and ensures the success of the MTD project.”

Bryan Finlayson, partner at Weightmans said: Mr Hammond has reacted to widespread criticism of the unrealistic implementation timetable for quarterly digital tax returns and a 1 year delay for small businesses with a turnover beneath the VAT registration threshold should give them more time to prepare.

“But it does not address the fact that the issues do not just relate to the size of the business. A lack of public awareness of the new requirements and the necessary IT infrastructure is also the real issue that needs to be addressed.

“Many individuals and businesses we have been speaking to are either not aware of the new requirements, or aren’t ready for the change. We’d call on the Government to do more to communicate what firms need to do to comply and prepare for the changes.” 

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