Chancellor’s U-turn over NIC hike

Chancellor Philip Hammond faced such a barrage of criticism over his Budget announcement that the rate of National Insurance Contributions (NICs) for many self-employed people would go up by 2 per cent by 2019 that he has made a dramatic U-turn on the decision.

Exactly one week after making the announcement, the Chancellor has written to Conservative MPs saying he will not proceed with the planned increase in Class 4 NICs, which are paid by the self-employed. However, he will still go ahead with the abolition of Class 2 NICs from April 2018, which had already been announced by his predecessor, George Osborne.

As well as being blasted by political opponents for the announcement, critics in his own party claimed that Mr Hammond had breached promises on tax made in the Conservative manifesto set by David Cameron by imposing the rise, while former Chancellor Lord Lamont described the move as a “rookie error”.

When the measure was announced, Treasury officials claimed that Mr Cameron’s “tax lock” only applied to employed workers, rather than the Class 4 NIC payments made by the self-employed. However while insisting that this may technically be true, Mr Hammond has confirmed he will still scrap the plan.

However, Mr Hammond said that a planned consultation that will look at the different parental benefit entitlements enjoyed by employees and the self-employed would be widened to look at other areas of different treatment. Once that is completed, the Government will set out how it intends to take forward and fund reforms in this area.

The Chancellor will make a further announcement on the matter in the House of Commons later today (15 March).

One-year delay to MTD for small businesses ‘not enough’

Chancellor Philip Hammond announced in the recent Budget that plans to digitise tax returns for small businesses have been delayed until April 2019 but critics claim this is not enough to prevent the measures being a burden to entrepreneurs.

The Government’s Making Tax Digital (MTD) roll out was meant to start in April next year but following the announcement, sole traders, the self-employed and buy-to-let landlords with an income of less than the current VAT threshold (£85,000 from 1 April 2017) will have an extra year before they must start reporting on a quarterly basis.

It is believed that the delay will cost the Treasury around £280m in lost revenues, as its success is predicated on a reduction in the number of errors and intentional mistakes made in tax returns.

However, the Association of Tax Technicians (ATT) is calling the announcement merely a “gesture” and says it is not enough to prevent the requirements of the scheme, such as digital record keeping and quarterly updates from “burdening entrepreneurs”. While the Association acknowledges that the delay will allow a little more time for such businesses to find a digital solution, they claim it will still be “overly burdensome”.

When HM Revenue & Customs (HMRC) issued consultation documents on MTD there was a general call for the start to be delayed so that business owners could select the best reporting solution for their individual requirements.

Like most other commentators, the ATT accept that a digital interface between HMRC and taxpayers is the best solution but are concerned at the cost of compliance, particularly since HMRC still has not responded to requests to publish the details of what the cost might be for small firms, so no one knows whether their estimates are accurate.

Export sales treble

Small and medium-sized businesses in the UK took advantage of a record-low pound to treble their export sales in the second half of last year, with exports jumping by 34 per cent year-on-year between July and December.

According to online payments business, PayPal, the very weak pound made products sold in the country cheaper for foreign buyers and not only were more goods sold but there was also a 13 per cent rise in the amount spent per transaction over the period.

The small firms that were able to take best advantage from the situation were the ones who had already adapted their online stores, for example by letting customers browse their sites in their on language and pay in their own currency.

The US was the UK’s top export market in the second half of last year, followed by Germany, Australia France and Italy. Customers from these countries were most attracted to new and exclusive products.

Meanwhile, of the goods sold, fashion and sports represented the biggest growth markets, where there was a whopping 49 per cent year-on-year sales increase to international shoppers.

However, these were not the only sectors enjoying healthy exports in 2016; according to new figures from HM Revenue & Customs (HMRC), British beer exports rose bysix6 per cent in the year, making beer the UK’s third most valuable food.

In fact, exports of food and drink as a whole grew by 10.5 per cent in 2016 to a record figure of more than £20bn, as UK manufacturers responded to rapid growth in demand for quality produce.

Excluding alcohol, the top three export categories in the sector remained chocolate, salmon and cheese. Amazingly, sales of salmon to Germany rose by an astonishing 98.9 per cent.