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Thin gruel for self-employed and contractors

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There was little to warm the hearts of self-employed individuals in this Budget, and some potential complications to deal with in 2023/24 with the change to the tax year basis.

27th Oct 2021
Employment Status & IR35 expert Re Legal Consulting Ltd
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Personal service companies

For the personal service companies, there is already a corporation tax rate rise from April 2023, if applicable, which was announced in the March 2021 Budget. 

Those companies will also be affected by the announcement in September of the Health and Social Care Levy, and the increases in dividend tax and NIC for the employees, employers and the self-employed. 

These rate rises, however, do not close the gap in the NIC burden between the employed and the self-employed. HM Treasury has wanted to raise the NIC rates for the self-employed for a long time to close that gap. Philip Hammond attempted a tapered rate rise on NICs for the self-employed to 11% in 2017 but very quickly had to do a U-turn.

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There was a slim chance that there may have been a further NICs rate rise for the self-employed to compensate for the cost of providing the SEISS Scheme during the pandemic. Fortunately, the Chancellor did not see fit to raise any more tax from the self-employed or the limited company directors who did not get any meaningful support during Covid, that really would have seemed unjust. The dividend allowance continues to be fixed at £2,000 for all taxpayers.

Off-payroll

Those who work off-payroll rarely get help from the government but, that is the very nature of being ‘self’ employed. In the aftermath of a global pandemic, however, now would have been a good time to help the small business sector perhaps by making concessions where the Bounce Back Loan was concerned but, that did not transpire.

There were no announcements concerning off-payroll working (OP21) or IR35, which was no surprise. However, the Finance Bill Sub-Committee announced on 24 October that they would be conducting a short follow up enquiry into the implementation of OP21 in the private sector and how the rules are working in practice. The National Audit Office also announced that they would be conducted a review in Winter 2022 into OP21 and whether HMRC has learnt any lessons from the implementation of the original off-payroll rules into the public sector.

Reform of the tax basis period

The government has announced that the basis period system that determines what profits are taxed in a tax year, will be reformed for the self-employed and partners in trading partnerships. From April 2024 profits will be taxed as they arise in a tax year, not as currently according to the accounting period that ends in the tax year. The year 2023/24 will be a transitional year, which will see more than 12 months of profits tax for any business that does not already draw up accounts to date that aligns with the tax year.

Although it is billed as being a simplification and that it will help with the shift to Making Tax Digital quarterly reporting commencing in April 2024, the cynic in me says that it is a move towards speeding up the revenue collection for the Exchequer.

Single Enforcement Body

I was looking for the government to fund the Single Enforcement Body (SEB) in the Spending Review as had been promised but, there was no mention of it. The SEB would have helped police the labour market and would also provide regulation for umbrella companies and protection for umbrella company workers, for the first time. 

The funding obviously had to be sufficient for this super-body to be effective and to take on the duties from the likes of the Employment Agencies Standards Inspectorate (EAS) but, it was not to be. There was no mention either of additional funding or resourcing of the existing bodies such as the EAS.

Future budgets

What I would like to see the most of in the future is for the incessant drip-feed of leaks and pre-Budget measures, such as the Social Care Levy, to stop and be delivered in the actual Budget itself once a year in a timely fashion.

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