Budget reaction from small business and sole-traders
The Chancellor’s final Spring Budget was met with frustration from large portions of the business community, particularly freelancers and other small business owners concerned about the National Insurance tax hike.
But there were also some small crumbs of comfort for small businesses. Here is some of the important budget news and reaction.
National Insurance tax hike
The most controversial piece of news in the Chancellor’s budget was that the government would increase self-employed Class 4 National Insurance Contributions by two percent.
For 1.2 million basic rate taxpayers, this would mean an extra £205 per year on their tax bill.
The Chancellor said that he wanted to make the system ‘fairer’ and address imbalances in the tax system between workers who are employed and those who are self-employed.
But one vocal critic pointed out that it was ‘blatantly unfair’ to tax the employed and the self-employed in the same way.
Labour said the government needed to “think again” on the policy and suggested that they could join forces with dissident Conservatives to defeat the change.
Some backbench Conservatives have already come out with strong criticism. Tory MP Andrew Murrison said: “It’s very important that we don’t disadvantage self-employed people,” while Nigel Mills said it was “unwelcome news to those people who are probably struggling and not getting all the rights they ought to.”
Lorence Nye, Economic Policy Adviser for IPSE, which represents self-employed workers said: “This policy misses one key area where the self-employed and employees are innately different – risk.”
He went on to explain: “Although there are many roles where an employee or a self-employed person can appear to be doing the same job as an employee will never be able to provide the level of flexibility that a self-employed person does. By working flexibly, they absorb their client’s risks, allowing them to respond rapidly to peaks and troughs in demand and they encourage innovation by providing expertise on an ad-hoc basis.”
Miles Grady, Director of CloudAccountant.co.uk said: “Miles Grady, Director of Umbrella.co.uk said: “The Chancellor’s measures make self-employment less attractive at a time when self-employed people are driving jobs growth, innovation and flexibility in the UK economy.”
From April 2018, the tax-free dividend allowance will be cut again from £5,000 to £2,000. This 60 per cent reduction to a rate that was only set in 2015 will hurt limited company directors and people with large shareholdings.
Again, the Chancellor said that the move was needed to address unfairness in the system and described the allowance as “an extremely generous tax break for investors with substantial share portfolios”.
But the Federation of Small Businesses called the move “a further disincentive for businesses to invest and grow”.
Business rate relief
The Chancellor unveiled a raft of policies designed to soften the blow for businesses facing large increases their business rates. Among the measures was a £300m discretionary relief fund to be awarded by councils to businesses that were hardest hit and a £1,000 rate discount for 90 per cent of British pubs.
But some critics have criticised the changes for not going far enough.
Helen Dickinson, Chief Executive of The British Retail Consortium said that the business rates system is still not fit for purpose in the modern world and called for more urgent action to fundamentally transform the tax.