- In:
- General
Yesterday’s Budget announcement contained some pretty mixed messages for the UK’s sole traders. While many will welcome an extension to the cash accounting parameters and a rise in the VAT registration threshold, on most people’s minds will be the increase in National Insurance contributions and the reduction divided allowance which will hit them directly in the pocket.
The good news:
- The thresholds for businesses using simplified cash basis accounting will increase from 6th April 2017. Businesses can now report their accounts in simplified form if their sales are under £150,000 a year (up from £83,000), and continue to do so until their sales reach £300,000 a year (up from £166,000). This should mean less red-tape for startups and lower income businesses – allowing them to focus on growth rather than getting bogged down financial records
- The VAT registration threshold will increase from £83,000 to £85,000 on 1st April 2017. Admittedly a small increase, but nonetheless a welcome rise to many sole traders who often try to keep below the additional administrative burden VAT reporting brings on a business and the pricing conundrums they have to address once 20% is added to their products and services.
The bad news:
- Limited company directors and shareholders will see a reduction in their dividend allowance from April 2018 – will fall from £5,000 in tax-free dividend income to just £2,000 in each tax year. This will affect those who take a low salary from their company and make up the rest of their income with dividends and result in them paying more tax on that income.
- National Insurance Contributions will increase in April 2018 from 9% to 10%, with a further 1% increase planned in April 2019. As a result of these changes, sole traders and partners whose profit exceeds £16,250 a year will see their NIC bills increase overall. This is estimated at an extra £282 a year for a sole trader earning £30,000 and £1,000+ for those earning £50k and over
On the whole, the general feeling among commentators across the board is that the negatives outweigh the positives for the UK’s self employed in this latest budget. The tone and direction from the chancellor appears to be focused on levelling the ‘tax playing field’ to bring self employed tax closer into line with tax paid by employees. But is that fair? Are the risk taking entrepreneurs and self-employed being discouraged from being innovative?
Should the playing field be levelled? And if so, what about the fact that the self employed don’t have the luxury of holiday pay, company pension schemes and other benefits that employed people do? Should they be paying the same levels of tax without the same protections employees enjoy?
