Although this was billed in advance as a low key budget it did bring a couple of unpleasant measures.
Most of the media commentary has been in relation to the increase in national insurance contributions for the self employed, and how this seems to renege on a specific promise in the 2015 Conservative election manifesto. However, although this promise has indeed been broken, it was done well before the budget, as the law which was passed after the general election specified that only class 1 national insurance would not be raised. This was certainly sneaky and perhaps should have been picked up by the opposition parties at the time.
The self employed have always paid lower nic’s, and historically obtained inferior state pension and benefit provisions in return for this, but although these latter are now broadly similar to an employed person, it remains the case that benefits specific to employment such as holiday pay, sick pay, maternity pay and paternity pay are still denied them. It is difficult to see how this is “fair” to use the chancellor’s word. Incidentally, why do they always take “fair” to mean an increase from the lower to the higher tax level rather than the other way around? And surely it is wrong to target lower and middle earners? To use two of the politicians’ phrases, this squeezes the “squeezed middle” even more and for those “just getting by” it’s another small turn of the rack.
It is true that the £2bn set aside to rescue (hopefully) what, in many parts of the country is a pretty much broken care system for the elderly, needs to be paid for, but the increase in self employed nic’s is anticipated to meet less than 7% of this cost, which make the measure almost pointless as well as unwelcome.
Another tax change not previously announced was to decrease the zero rate band for dividends from £5,000 to £2,000, apparently because this original exemption disproportionately benefitted small family companies. Predictably, the restriction also applies to every other taxpayer, so at least that’s “fair” because everybody else gets hurt as well.
Moving onto tax administration, the forthcoming move to Making Tax Digital represents a much bigger change in the system than the introduction of self assessment or RTI. If carried out properly, it should bring significant benefits for taxpayers, their accountants and the Government. Some have asked how HMRC, an organisation which is often incapable of answering a telephone, will cope with this sudden mass of data. Others have cited the 9 figure cost of the abandoned NHS patient record system as typical of the public sector’s failure to manage large IT projects. With this in mind, it was probably prudent to restrict the planned April 2018 introduction to businesses and landlords above the VAT threshold. Businesses and landlords with turnover between £10,000 and the VAT threshold now join a year later, whilst limited companies come on board from April 2020 as originally planned.
We are devoting a great deal of time and resources to helping clients cope with this change as seamlessly as possible, so do get in touch.
Andrew Fisher FCA