Budget 2017 - So will the Chancellor be sacked?

Posted on in Business Tax

The Chancellor's humour today peppered around some dry, but important, statistics won't prevent today's headline being all about the self employed Class 4 national insurance increase from 9% to 10% in April 2018 and 11% from April 2019. 

The thing about national insurance

It's complicated.

The Chancellor referred to the lack of payment for public services but the national insurance of £6,170 due on a salary of £32,000 includes £3,297 paid by the employer, not the individual. Plus the employer receives corporation tax relief reducing the net amount paid to the Treasury by £659 to £2,638 from the employer.

If you look at what the individual pays, the correct comparison is £2,873 from the employee versus £2,300 from the self-employed, a reduced differential of £573. On a salary or profit of £32,000, this gap will drop to about £240 from April 2019. 

This £240 is effectively the price of no holiday pay, sick pay, maternity pay, having to pay all your own pension contributions etc. 

Hopefully, the announced review of benefits available to all will improve these comparisons. 

15 MARCH 2017 UPDATE - THIS CLASS 4 NATIONAL INSURANCE INCREASE HAS BEEN SCRAPPED. 

Making tax digital

On top of this a 1 year delay to 'making tax digital' quarterly reporting where your turnover is less than £83k won't reduce this new self-employed burden by much and the self-employed may start to feel a bit hard done by today.

Dividend tax 

The 0% tax rate on £5,000 of dividends will from April 2018 be available on only £2,000 of dividends. This will adversely affect small owner-managed businesses but it's still likely to be beneficial to run many businesses through a limited company, if only to be able to control the timing of your personal taxable income.

Perhaps when HMRC was told that its example of the interaction of the £5,000 and the tax free personal allowance was wrong, the Treasury had to re-run its numbers and discovered that £5,000 would cost more than they realised!

Research & Development 

As part of the Chancellor's determination to tackle our poor productivity, he seems willing to be more lenient about the details required when making an R&D claim. This needs to be an instruction to HMRC, as the most lengthy information requests are made by inspectors after submission, sometimes for relatively small claims. 

Conclusion

The Chancellor's error in the national insurance comparison and HMRC's error in calculating the effect of the £5,000 tax free dividend, show how complicated the tax system has become. Even those legislating and running it don't always understand the interactions across different parts of the system. There has to be more inroads into simplifying the tax system so taxpayers have more certainty over the tax they'll have to pay.

On the basis the Chancellor is waiting for the Autumn to deliver a more comprehensive budget, and will check with practitioners before making comparisons, perhaps he won't be sacked this time. And perhaps we'd like to hear a few more jokes yet. 

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Guest Thursday, 22 June 2017