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Budget (6): Small business owners to feel the pinch
by Susie Hughes at 12:35 10/03/17 (Political News)
The Chancellor announced two changes in a step to reduce the tax differential between the self-employed, director-shareholders and the employed. These changes include an increase to the main rate of national insurance contributions (NIC) paid by the self-employed and a reduction to the new dividend allowance.
Tina Riches, national tax partner at Smith & Williamson, said: “The increase in NIC for the self-employed represents baby steps in creating a fairer tax system for all.

“While some will feel the pinch from this change, it is important that the variance in tax rates for different structures is reduced, not only to improve the flow to the exchequer coffers but so that small businesses can be encouraged to grow by taking on staff. There are many costs involved in employing staff, so business owners need to have a more level playing field compared to those that are self-employed."

Dividend allowance

The new dividend allowance of £5,000, introduced from April 6 2016 together with a reform of the dividend tax rates, will be reduced to £2,000 from April 2018. This will reduce the amount of dividend income individuals receive tax free. A basic rate taxpayer with at least £5,000 of dividend income will see a £225 increase in their tax bill from April 2019, a higher rate taxpayer £973.

This may mean that more people will be required to complete self-assessment tax returns if their dividend income exceeds £2,000 and will affect investors as well as the self-employed.

There may be further changes to closer align the taxation of employees and self-employed with The Taylor report due in the summer.

Ms Riches said: “Cutting the dividend allowance after only having introduced it this year will create confusion for businesses. Business need certainty, and an ability to plan ahead, which making this change has not done. It’s unfortunate that the government did not consult on the dividend allowance before it was ever introduced as that might have teased out the issues.”

As confirmed at the autumn statement 2016, from April 2018 self-employed class 2 NIC will be abolished. It has now been announced that at the same time the main rate of self-employed class 4 NIC will be increased by one per cent to 10 per cent (with a further one per cnet increase in April 2019 to 11 per cent). Employees currently pay a main rate of 12 per cent.

This will increase the NIC due by a self-employed individual with profits of £40,000 by approximately £500 after taking into account the abolition of class 2 NIC.

Further information
Shout99 will continue coverage of the stories emerging from the Budget; in the announcements after the Budget; and expert comment and analysis in the Political News section of Shout99.

Alerts also available through our Twitter feed.

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Susie Hughes © Shout99 2017

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