While the tone of the Budget speech was upbeat with several jokes from the Chancellor sending the House into uproar, the message itself had a mixed reception from the small business community. Little more than a week later, we’ve unexpectedly found ourselves in U-turn territory.

The crux of the final Spring Budget no doubt rests with the introduction, and subsequent reversal, of proposed changes to the National Insurance Contribution (NIC) system. Hammond’s discontinuation of the increase in class 4 contributions has come as welcome news to the self-employed, who otherwise would be facing a 2% increase. The Chancellor has acknowledged that the changes would be breaking a manifesto point, saying that they were not in “the spirit of the commitments that were made”, and this U-turn could go some way to appeasing the social media storm that emerged after the Budget.

 

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The reduced NI rate is often thought of by the self-employed as compensation for a lack of paid annual leave, maternity and paternity leave and sickness pay. On top of this, the last Chancellor’s initiative to abolish Class 2 NIC and introduce a new, more generous state pension for the self-employed means that they can rest assured that there are supportive measures in place.

The to-and-froing of the final Spring Budget is, however, indicative of a much larger problem that expands way beyond the self-employed. The system in the UK to tax work no longer reflects modern working practices. The rise of the gig economy, combined with a blurring of the line between employment and self-employment, has left the current method of labour taxation firmly in the past. We can only hope that the Taylor Review – published in the summer – and the Autumn Budget provide real solutions to taxation, rather than the quick fixes and U-turns we’re currently seeing.

Despite the headlines surrounding the proposed changes to the NIC system, it’s worth remembering that a number of other measures were included in the Budget speech. A number of commentators have focused on the extension of the Making Tax Digital deadline for micro businesses who fall under the VAT threshold and a £435 million fund to support those worst affected by business rates – good news for those who need extra time to adjust to the new system.

On the flip-side, Hammond dealt company owners a blow with the announcement that the tax-free dividend allowance will be reduced from £5k to £2k as of April next year. Many company owners currently use dividends to reduce their tax liability and increase their take-home earnings, so this could have a significant impact.

Ultimately, the final Spring Budget has brought with it the good, the bad and the unexpected. It’s encouraging to see the deadline for the Making Tax Digital initiative extended, although the news surrounding the tax-free dividend allowance is a less appealing. More than anything, Philip Hammond’s unforeseen volte-face on National Insurance contributions comes as a surprising piece of good news for the self-employed.

However it is also representative of a flawed tax system – and plugging the hole doesn’t detract from the fact that the bucket is broken. All eyes are on the Chancellor to deliver meaningful tax reforms that genuinely support our working culture, rather than continuing to yo-yo on temporary measures.

If you have any thoughts on small business policies and how they might affect your business, tweet me @biveksharma.


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