The Chancellor may be waiting until the summer for the final report from Matthew Taylor, chief executive of the RSA, into the wider implications of different employment practices and the gig economy, but he used the Budget speech to set out the general direction
The Chancellor told parliament: ‘[Matthew Taylor] is clear that differences in tax treatment are a key driver behind the trends we are observing… Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system.
‘Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.’
The Chancellor added that the lower national insurance contributioins (NICs) paid by the self employed was forecast to cost the public purse more than £5bn this year.
‘The abolition of Class 2 NICs for self-employed people, announced by my predecessor in 2016 and due to take effect in 2018, would further increase the gap between employment and self-employment,’ he said.
But the Chancellor also attacked the use of personal service companies by cutting the annual dividend allowance from £5,000 to £2,000 from 2018. ‘The dividend allowance has increased the tax advantage of incorporation,’ he said.
Chris Bryce, chief executive of IPSE, the association for independent professionals and the self-employed, said that self-employed people who face a significant increase on their tax bills might feel that the Chancellor has it in for them. ‘When you look at the additional support offered for business rates, it appears as if the Chancellor is supporting SMEs by hitting entrepreneurs and the smallest of businesses,’ he said.
‘Adding in the reduction in dividend tax allowance, whether you work as a sole trader or through a limited company you will be facing higher bills. The Chancellor shouldn’t forget that growth in self-employment has driven our labour market in recent years and punitive rises in tax will make many people have second thoughts about striking out on their own.’
Toby Ryland, corporate tax partner at HW Fisher said the lack of consistency from the government was a huge frustration for small business owners. ‘Not so long ago, the Government was encouraging people to incorporate via the tax-free dividend allowance and now, by reducing it, it is giving out the exact opposite message,’ he said.
Chris Sanger, head of tax policy at EY said that the changes could be just the start and that the Taylor report could prompt further changes. He said: ‘The strategy behind the taxation of work didn’t become much clearer today and the Chancellor has left himself with the opportunity to boldly go where no government has gone before.’