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Budget, What Budget?

The past couple of weeks have seen some extraordinary events in the wake of Philip Hammond’s Budget. First came the announcement that the self-employed face an increase in National Insurance Contributions (NICs), swifly followed by a complete U-turn a week later following a swathe of critiscism and outrage, the Chancellor climbed down on the issue of an increase in NICs for the self-employed, leaving Hammond in a vulnerable position. Last week’s Budget was a bit of a blow to the self employed workers of the UK, an army of small businesses that help put the Great into Great Britain. The UK economy relies heavily on small to medium sized businesses and this includes the army of self-employed people who run their own businesses, employing themselves and, sometimes, providing employement for others. Over the past decade the number of self-employed workers in the UK has increased sharply, rising from 3.8 million in 2008 to 4.6 million in 2015. In fact, 99% of British businesses are small to medium businesses with a large percentage of that number enjoying self employed status. The self-employed would now face changes to the way in which they pay their National Insurance (NI) contributions. According to last week’s Budget, in April 2018, the rate will increase by 1% to 10% then there’ll be another hike the following April when it will rise to 11%. This hasn’t come as a total surprise as there had already been speculation that the Chancellor would make a move to equalise levels of taxation between the employed and the self-employed. If you’re self-employed and think that it would be a good idea to turn your business into a limited company in a bid to beat the Budget, then you’re out of luck, sorry. The dividend tax allowance came into operation in April, 2016, replacing the 10% dividend tax credit. This means that company share holders are entitled to a tax free dividend allowance up to the value of £5,000 instead but from April, 2018 this amount will be reduced to £2,000. This means that tax payers operating through a limited company will pay more taxes. As we all know, a week is a long time in politics and this must have felt like a very long week for Philip Hammond as he faced accusations that the NICs increase would break a 2015 manifesto pledge. Pressure from backbenchers and the ensuing public outcry has resulted in the turnaround which now leaves the Treasury facign the prospect of not receiving the £2 billion this increase would have raised by 2022. However, what’s bad news for the Chancellor is good news for the self-employed who will be heaving a sigh of relief. As most small business owners know, running your own business and employing yourself can be challenging at times. Keeping on top of the business finances, maintaining a steady cashflow and staying out of debt are essential for the health of any small business, including the self-employed and the increase in NICs would have added to the pressures faced by self-employed business owners across the land.