News: So Will the Chancellor be Sacked?

Posted on 8th March 2017

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.

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.

Back to News ›

Testimonials

"I am delighted to have a long-standing relationship with the BHBPA. Since its foundation the Association has gone from strength to strength and there is no doubt that it has brought huge benefits to its members and the business community as a whole through the partnerships it has formed with the local authorities, Sussex Police and local organisations. It is paramount that Burgess Hill businesses have an effective collective voice."

The Hon Nicholas Soames MP

"Since joining BHBPA we have found it to be a dynamic and vibrant members’ organisation, with excellent, regular and informative meetings.

Peter Liddell does a first class job in ensuring that members’ interests are aired and addressed.
"

Mark O'Shea, Partner
(Rawlison Butler)

"The BHBPA is the most effective and dynamic business organisation I have ever worked with in over 30 years in Local Government. It has a very active and large membership whose points of view are taken seriously by all government structures. Peter Liddell does an excellent job in providing unique and enjoyable networking opportunities where members interact and discuss points of mutual interest. It provides a forum for businesses to discuss common issues, to share experiences and to play a powerful and meaningful role in the Burgess Hill community. The BHBPA provides important and credible support for all its members and ensures that their best interests are represented where necessary. "

Steve Cridland, CEO
(Burgess Hill Town Council)

"If Carlsberg did networking they would do it the BHBPA way. Each event is packed with great ideas, thought provoking presentations and fun. As a small business we feel supported and part of the community. We have built friendships and business relationships and there is always plenty of advice on hand to benefit us all so don’t hesitate to join whatever the nature of your business. "

Angela Gill, Managing Director
(Bio Productions Ltd)