So much for Philip Hammond’s Budget surprise. His small attempt to bring the tax paid by the self employed in line with that paid by the employed (its all about fairness…) has lasted all of a week.
The well-off self employed will be thrilled, of course (see my previous post on this). But I’m not sure they would be wise to relax. Hammond’s efforts, however feeble they might have been, make it clear that Westminster has finally grasped that the narrowing of the tax base thanks to rises in the personal allowance, tax credits and self employment simply isn’t sustainable.
That makes this no more than a stay of execution. The self employed do pay less tax than the employed, despite now getting similar benefits – and that is unlikely to be left to stand.
The cut in the dividend allowance took aim at the same group as the National Insurance (NI) rise (albeit with quite a lot of collateral damage) and the changes to the flat-rate VAT rate have done much the same (more on this in MoneyWeek in a few weeks, but all you need to know for now is that the flat rate system actually allows some of the self employed to make a profit out of paying VAT!).
So, what next? Perhaps some change to business property relief, says NFU Mutual. Perhaps more fiddles with VAT, more clampdowns on expenses claims or perhaps, suggests George Bull of RSM, a new campaign on the “elephant in the room”: tax evasion.
The shadow economy (something it is clearly easier for the self employed than the employed to operate in) costs the government well over £11bn a year. Why not invest more in trying to cut it – start perhaps with some more amnesties for anyone wanting to come clean?
Finally, the self employed might like to prepare for an extension via the tax system of pensions auto-enrolment (that they don’t have the same pension provision as the employed, while not a responsibility of the taxpayer, is clearly a matter of concern for the welfare state). This won’t look like an NI rise – but it will effectively be one.
As I say, best not relax – Hammond might not have found his solution yet but he’s definitely identified his problem.