Following the government’s Spring Budget announcement and its seasonal adjustments, small and medium businesses – including the self-employed – stand to be directly impacted. Chancellor Philip Hammond delivered his first budget in early March and the key takeaways are increases in national insurance contributions from the self-employed and SMEs.
Whilst the cash deficit is down in the UK, debt remains high and productivity is still low. In response to this, Class 4 national insurance contributions for the self-employed (NICs) will increase and the tax-free dividend allowance for directors and shareholders of SMEs will be reduced as of April 2018. So what does this mean for you?
Rates for small and medium businesses
Tough criticism has been voiced even before the budget was officially unveiled, but the government plans to resolve concerns in three ways:
- Businesses currently losing small business rate relief will not be impacted by significant bill increases. Any increases stand to be less than £50 per month.
- A £1,000 discount will be applied to 90% of local pubs’ business rate bills.
- Discretionary relief will be offered for local councils with hard-hit cases by way of a £300 million fund.
The Chancellor aims to even out the employment game and target the perceived discrepancy between tax paid by an employee and the employer by reducing the tax-free dividend allowance from £5,000 to £2, 000. The £3,000 reduction that takes effect from April 2018 might prove difficult for SMEs and their owners that rely on dividends as a primary source of income payment.
Increase in self-employment
A reported 15% of all employed people in the UK are self-employed. It's claimed that these 4.75 million self-employed workers' lower national insurance contributions "cost the public" £5 billion in 2016-17 alone. The Spring Budget 2017 will tackle this by increasing contributions to 10% from April 2018 and 11% from April 2019, raising a further £145 million a year.
The increase comes as higher numbers of SMEs and greater volumes of self-employment were reported following the Brexit vote back in June 2016.
“It is a knee-jerk reaction to all the recent cases we have heard about lately where unscrupulous employers are forcing workers into false self-employment. It is the wrong move and they should be clamping down on employers, not employees,” says Dave Chaplin, CEO of Contractor Calculator, a consultancy for the self-employed.
If you're an SME or self-employed trader concerned about maintaining robust cashflows following the Spring Budget announcements, contact one of our Dukes Bailiffs operators for advice here.