Despite promises to the contrary, George Osborne had a few rabbits in his hat when he stepped up to deliver the last Budget of the current Parliament today. Notably – and after several years of giving the self-employed the cold shoulder – two changes that will directly benefit the UK’s freelancers and contractors.
The first, the abolition of Class 2 National Insurance contributions, will be a welcome change, however may not actually result in a tax saving for the self-employed as Class 4 contributions are set to be reformed to include a “contributory benefit test.”
The main coup for the UK’s self-employed workers is, as Osborne himself put it, the “death of the annual tax return” – or Self Assessment, as you and I know it. The Government is aiming to replace the annual Self Assessment scramble with a real time online tax account which allows the self-employed to update and pay their tax at any time during the year. The move is being billed as a “a revolutionary simplification of tax collection.”
HMRC is planning to introduce the system to around five million businesses and ten million individuals in early 2016, and hopes to make the system the de facto standard for self-employed tax reporting by 2020 (aside from a small cabal of individuals with exceedingly complex tax affairs).
Given HMRC’s rocky history with large-scale IT deployments the plans for the online tax accounts certainly seem grand – there are plans to let the system link into accounting software and bank accounts so tax liabilities can be updated in real time and to reduce the administrative burden on users (although these features aren’t expected until closer to 2020).
Announcing the measures, Osborne said:
“Twelve million people and small businesses are forced to complete a self-assessment tax return every year. It is complex, costly and time-consuming. So, today I am announcing this.
“We will abolish the annual tax return altogether. Millions of individuals will have the information the Revenue needs automatically uploaded into new digital tax accounts. A minority with the most complex tax affairs will be able to manage their account on-line.
“Businesses will feel like they are paying a simple, single business tax – and again, for most, the information needed will be automatically received. A revolutionary simplification of tax collection. Starting next year.
“Because we believe people should be working for themselves, not working for the tax man. Tax really doesn’t have to be taxing, and this spells the death of the annual tax return.
The Budget document says further details on the new system – including the policy and administrative changes needed to make the system a reality – will be published later this year.
With the UK’s self-employed population set to play an important role in May’s General Election, Osborne may have just bought the Conservatives a slew of freelancer votes.