Skip to Navigation

Spring Budget 2017

The Chancellor’s Spring Budget was really a bit dull, until the announcement of a tax rise that appears to be a clear breach of the Conservative Party 2015 election manifesto not to raise certain taxes or national insurance.

“Spreadsheet Phil” said it is unfair that the self-employed should pay less tax than the employed, when they receive broadly the same benefits. So the main rate of class 4 NICs paid by the self-employed will increase from April 2018 by 1% (to 10%) and another 1% from April 2019. This coincides with the abolition of class 2 NICs from April 2018. The Government says all self-employed earning more than £16,250 will pay more NICs by 2019/20. The actual amounts will be dependent on future indexation changes to the thresholds at which NICs are paid, but broadly this is a maximum extra NIC cost of around £200 in 2018/19 and £550 in 2019/20.

Whether this is about unfairness or a simple tax rise is open to conjecture. Self-employed numbers have grown by around 45% since March 2000 (according to The Office for National Statistics) and now represent around 15% of the workforce according to the Government. That is a large target for a tax increase.

If you operate through a limited company there is more bad news. It is apparently not fair that you can receive £5,000 of dividends each year tax-free so the dividend allowance is reduced to £2,000 from April 2018 at a cost to individuals of between £225 and £1,143 each year, depending on your income tax rate. Of course this will also affect investors receiving dividends. The dividend allowance was introduced only in April 2016 following a radical change to the taxation of dividends. Before that, an individual could have received around £28,600 of dividends without tax on top of their tax-free personal allowance.

The signals appear clear. The self-employed and entrepreneurs operating through their own companies are a target. In this Budget, the Government observes that the self-employed have more generous tax reliefs because they can claim more expenses than an employee can. Are people really self-employed or operating their own companies largely for tax reasons? That may be so in some cases but many want to be their own boss and are prepared to take business risks. The reality might well be that the Government needs to raise taxes to repay debt and needs to justify doing so in terms of “fairness”. It has long been said that the taxman would have everyone on PAYE if it could, and perhaps it is trying to do just that.

Update - 15 March 2017 - Chancellor Philip Hammond has announced a U-turn on the Government's plan to increase tax for the self-employed (as first mentioned in the Budget of 8th March 2017).

"As soon as it was suggested that the proposed self-employed NIC increase was potentially in breach of the Conservative Party manifesto, politics took over from tax policy and the proposal was under threat. The proposal was never really about fairness but about increasing the tax take. In itself it further encouraged the self-employed to consider forming limited companies because of the reduction in corporation tax. The reduction in the dividend allowance claws some tax back.

Going forward we should expect further measures to increase taxes, but perhaps not as blatant as the NIC increase and probably more convoluted."

9 Mar 17
Colin Tice