Chancellor may overhaul self-employed tax system in Spring Budget 2017

2nd March 2017

Chancellor of the Exchequer, Philip Hammond, has acknowledged a ‘tax gap’ between full-time employees and self-employed professionals and could announce plans to overhaul the UK tax system for the self-employed in next week’s Spring Budget 2017.

The Treasury says there is a strong case to tackle the growing disparity between workers who pay tax via PAYE, the self-employed and those who work via personal service companies.

Mr Hammond is forecast to announce a consultation on self-employed taxation next week, with a view to introducing changes by the Autumn Budget 2017.

The number of self-employed professionals in the UK has more than doubled since 2009, with a particular increase in public administration (90%) and banking (60%).

In the last Autumn Statement, the Chancellor intimated a consultation on the tax treatment of different individuals was necessary given the changing way people work and live.

“Technological progress is changing the way people live, and the way they work; the tax system needs to keep pace. For example, the OBR [Office of Budget Responsibility] has today highlighted the growing cost to the Exchequer of incorporation,” said Hammond.

“So, the Government will consider how we can ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base as the economy undergoes rapid change.

“We will consult in due course on any proposed changes.”

At present, self-employed professionals pay national insurance contributions (NIC) at 9% on their business profits, whereas employees pay NIC at 12% on their salary. However, those who operate through limited companies do not pay any NICs on company profits.

If the Chancellor was to raise the NIC rate for self-employed professionals from 9% to 12%, in line with full-time employees, it could raise £1bn for the Treasury coffers.

Prime Minister, Theresa May, has already commissioned Matthew Taylor, a former adviser to Tony Blair, to review the UK labour market and report his findings later in the year.

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