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Potential 25% New Tax For Business Owners

There are approximately 4.2 million people who are self-employed in the UK, which is around 15% of the UK workforce. Historically, the self-employed have had an effective lower rate of tax, primarily through reduced National Insurance payments.

If you have a look at your payslip, if you aren’t currently aware, both you and your employer pays National Insurance, which for basic rate tax payers is currently 12% by the employee and 13.8% by the employer.

If you own a limited company, you are likely to pay yourself a minimal salary, with the rest through dividends. By doing this, you are unlikely to be paying any National Insurance, either as a business, or personally against your pay.

As the number of people who are self-employed increase, the amount of National Insurance revenue received by the government will fall.

An extract from Philip Hammond’s Autumn Statement 2016:

“Mr Speaker, technological progress is changing the way people live, and the way they work;

The tax system needs to keep pace. For example, the OBR has today highlighted the growing cost to the Exchequer of incorporation.

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.”

If the resulting consultation decided that self-employed/business owners should be generating the same national insurance revenue as employees, could mean a tax of around 25%! For all business owners, this is something that is not wanted!

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