Yesterday's Spring budget has been a quiet one for employees. However, the Chancellor has proposed a couple of changes affecting self-employment or personal service company arrangements which are a further indication of the Government's view that individuals who do the same work should face a similar tax bill, regardless of whether they are employees, self-employed or engaged via personal service companies (PSCs). Those changes are:
- Class IV National Insurance contributions for the self-employed will increase by 1% to 10% for annual profits between, currently, GBP 8,060 and GBP 43,000 per year in April 2018, and by a further 1% to 11% in 2019. The 2% rate on profits over the upper limit (currently GBP 43,000) remains unaffected. The quid pro quo for this increased National Insurance bill for the self-employed is that the Government proposes to introduce a greater degree of parity between employees and the self-employed in respect of state parental benefits.
- The tax free dividend allowance is reduced from GBP 5,000 to GBP 2,000 from April 2018. This marginally reduces the tax incentive for individuals who are engaged via personal service companies, though some incentive still exists, particularly for the hirer.
The Chancellor suggested that these changes were, at least in part, influenced by advance notice of some of the findings of the Taylor review. That review is gathering evidence on modern employment practices, including consideration of the gig economy. Its results are scheduled to be published later this year, but the suggestion that changes above were inspired by its initial findings might be said to hint at further challenges to the status of those in the gig economy once it is published.
By way of round-up, the following changes which have previously been announced will also come into effect later this year and next:
- The income tax personal allowance will increase to GBP 11,500 from 6 April 2017 with the threshold for the 40% tax rate also increasing to GBP 45,000 from the same date.
- Changes to salary sacrifice mean that the tax and National Insurance advantages of providing benefits through salary sacrifice will be removed, except for specified benefits such as employer-provided pensions.
- There will be fundamental changes to the taxation of termination payments from April 2018. See our previous alert on these changes here.