Budget 2017 – Self-Employed

Self-Employed & Partnerships

Class 4 NIC

It was widely expected that significant changes would be made which would affect the taxation of self-employed people, after concerns that changes in the labour market, in particular the “gig” economy, is reducing the tax base significantly.

Self-employed people currently pay a lower rate of National Insurance than employed earners, and there is no equivalent of employers’ National Insurance, which is paid by employers at a rate of 13.8%.

One change which was widely tipped was an increase in the main rate of class 4 National Insurance, paid by the self-employed on their taxable profits.  This rate is currently 9%, compared to 12% paid by employees.

Class 4 NIC is paid by self-employed people with taxable profits of over £8,164 in 2017/18 (£8,060 in 2016/17).  The rate of class 4 NIC will increase after the end of the next tax year.  From 6 April 2018, the rate of class 4 NIC will increase to 10%.  It will then increase to 11% from 6 April 2019.

Class 2 NICs will also be abolished from April 2018, so this may offset much of the April 2018 increase for those with lower profits.  The Government’s intention is that people with profits of less than £16,250 will pay no more class 4 NIC in 2019/20 than they would have on the same profits in 2017/18.

See our article on National Insurance changes for more details.

Cash basis

Self-employed individuals and simple partnerships are able to use a simplified cash basis of calculating trading profits and losses.  In order to do this they currently need to have an annual turnover of less than £83,000.  This threshold has been increased to £150,000 from 2016/17.

Digital tax reporting

Changes are being introduced which affect the reporting of income and expenses by people who receive trading and rental income of more than £10,000 each year.  Under the changes, they will need to make quarterly reports of their income and expenses using an online tax account.  It is intended that this quarterly reporting will replace the annual tax return.  Digital tax reporting is due to start from April 2018.  However, for unincorporated businesses with an annual turnover of less than the VAT registration threshold, the start of online reporting has been delayed until April 2019.  (The VAT registration threshold will be £85,000 in 2016/17, but may increase for 2018/19.)

See our article on Making Tax Digital for more details.

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Aug 16

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