Steven Cox
2 minutes length
Posted: 22nd March 2017

BUDGET 2017: NIC u-turn as Government recognises the impact on small businesses and manifesto blunder

NIC U-Turn for small businesses 

Earlier this month I was blogging about the announcements made in the Spring Budget and commenting its’ impact on Small Businesses with respect to Making Tax Digital (MTD). Whilst the delay for 3.1m non-VAT registered businesses was welcomed, the increase in National Insurance Contributions (NIC) was a shock and against the party’s manifesto pledge in 2015.

Normally when the budget is announced that’s it until the legislation comes out, however it seems like the Chancellor of the Exchequer Philip Hammond has come to his senses over this and has bowed to rising pressure across the board (including within his own party!) by announcing a u-turn on the plans to increase National Insurance rates for self-employed people.

In Parliament last week, Hammond stated that “In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”. Further, he stated that “most commentators” believed the “sharp increase” in self-employment over the last few years had in part been “driven by differences in tax treatment”.

In what can only be described as a lack of foresight in the original plans to bring forwards the NIC increases, the Government has at least listened and reacted promptly. No-one likes egg on their face, but out of the chaos of this Budget at least Small Businesses can relax in the knowledge that their tax and costs won’t now be increasing next year due to the Budget.

However, this does create a new problem for the Government and the UK as a whole. The increase in NIC had planned to raise £2 billion in taxes by 2022 that will now need to be backfilled. Hammond has said that he will use the Autumn Budget to set out further measures to “fund in full” this missing tax. So, we will have to wait ~6 months to find out who’s going to front the new tax bill!

Given the turbulence in the governments’ plans for tax, it is still imperative accountants, small businesses and self-employed move to digital tax sooner rather than later. You don’t want to be dealing with the move to digital tax during other tax changes and charge increases.

 For more online information about MTD, check out our Making Tax Digital Hub, a teeming hive of MTD news, insight, events (including our latest MTD roadshows, held throughout the UK this spring) and dedicated training solutions exclusive to accountants.

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