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Autumn Statement: self-employed could be hit with more taxes

Liz Saville Roberts, Plaid Cymru MP for Dwyfor Meirionnydd said she will be presenting the Tax Reform Commission Bill this week – which seeks to assess the impact of the tax system and make recommendations for reform.
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Everyone is preparing to pay more taxes following the Autumn Statement proposals, but some believe the self-employed could be unfairly over-taxed. Read what economists, tax specialists and MPs are expecting the Autumn Statement to reveal later this week.

The UK’s latest economic and tax-raising forecast suggests the government might not even need to find any more savings to hit its own fiscal targets. That’s according to Kemar Whyte, a Principal Economist at the National Institute of Economic and Social Research.

“The increases in corporation tax, together with ‘fiscal drag’ resulting from the combination of higher inflation and frozen tax thresholds, mean that the budget deficit will start to fall in 2023-24,” said Whyte.

Kemar Whyte, a Principal Economist at the National Institute of Economic and Social Research says we could see an energy windfall tax and an extension of the freeze of income tax thresholds

Whyte said that based on the institute’s box analysis research, “high inflation can benefit the public finances by devaluing public-sector debt.”

One thing seems certain and that’s that everyone is likely to have to pay more tax, just how much should be revealed in the Autumn Statement. However, Whyte believes there are other likely options.

For instance, there’s every chance the government will look to reduce public spending after the existing spending plans come to an end in 2024-25; lower foreign aid; and cut capital expenditure. On the tax side, we could see an energy windfall tax and an extension of the freeze of income tax thresholds.

Kemar Whyte, a Principal Economist at the National Institute of Economic and Social Research

The economist believes that when the Chancellor raises tax and spending cuts worth around £55bn in an effort to lower borrowing and cut the debt burden, “economic growth will take a hit and therefore by extension, tax revenues.”

Where will the UK most likely see tax hikes?

The media has widely reported that stealth taxes and taxes on immovable taxpayers – those who can’t simply relocate to avoid the tax could be announced in the Autumn Statement.

Stealth taxes likely

There is a high probability that we will see an extension to the windfall tax on energy companies, according to Tim Sarson, KPMG’s UK Head of Tax Policy and Director Sharon Baynham.

“It’s likely that the windfall tax on energy companies (the Energy (Oil & Gas) Profits Levy) will be extended until 2028 (it was due to expire at the end of 2025) and levy might increase from 25% to 30%,” said the KPMG specialists. “The scheme may also be expanded to electricity generators.  It is estimated this could raise £40 billion over five years.”

Tim Sarson, KPMG’s UK Head of Tax Policy

Banking surcharges

In their KPMG report, they predicted that Mr Sunak’s past proposals could come back. “Mr Sunak’s proposals, made while he was chancellor, were for the corporation tax rate to rise to 25% and the banking surcharge to fall from 8% to 3%, neutralising much of the impact of the increase in the headline tax rate for banks. 

“With a banking surcharge of 8% and a headline corporation tax rate of 25% banks would face a 33% tax on profits from April 2023.  Banks will be keen for the surcharge to stay at 3% as originally planned to ensure the sector remains internationally competitive.”

Insurance premium tax

Hikes on insurance premium tax (IPT) could be increased. KPMG explained: “IPT is an indirect tax imposed on insurance policies but at a much lower rate than standard VAT. Never a headline grabber, it is one of those taxes that voters may believe is borne by the insurance company while in fact it is passed on to them. An increase in the IPT rate would tick the stealth tax box that we are expecting in this budget.”

KPMG Director Sharon Baynham

Income tax

“We expect that income tax will not go up, in line with the 2019 manifesto. Nevertheless, there is talk that the 50% additional rate may return. Anything is possible but the previous 50% rate did not bring in the promised revenue – in fact income tax receipts increased when it was fell to 45% under the Conservatives. A more likely scenario would be a drop in the current additional rate threshold of £150,000 as technically this wouldn’t breach the manifesto.”

The KPMG report said that the 1p reduction in the basic rate of income tax, originally promised when Mr Sunak was chancellor for 2024 and brought forward to 2023 by Mr Kwarteng, is now permanently on hold until the public finances are in better shape. 

Employer’s national insurance

The KPMG report stated that it is rumoured that there could be a1.25% increase in employer’s national insurance contributions could be on the cards. This will impact limited company directors, many of which are freelancers, that have set up limited companies. This, said the report, would “effectively reverse the reversal of the Health and Social Care Levy” but only in part. 

This would protect workers’ take-home pay but would be a blow for labour-intensive businesses. It would also increase the distortion between the employed and self-employed, which is not good for the tax system.

Tim Sarson, KPMG’s UK Head of Tax Policy and Director Sharon Baynham

The tax specialists said that an increase in employers’ national insurance is “quite possible”. If introduced as a new levy rather than an increase in national insurance it would “arguably not breach the manifesto commitment to freeze the rate.”

Just how high will interest rates rise?

The government has explained in a statement that The Bank of England has an inflation target of 2 % so it has raised interest rates from 0.1% in December 2021 to 3.0% currently. Further increases are likely.

“Reacting to the mini-budget, financial markets raised expectations for interest rates to rise above 6% at one stage, before predictions easing recently to below 5%. Economists generally expect official rates to reach at least 4%,” said the statement.

Higher rate expectations have led to higher interest rates on mortgages. This has added to the squeeze on household incomes from high inflation. There have been steep falls in consumer confidence. Prospects for consumer spending, a key driver of economic growth, are therefore weak.

The House of Commons said:

The Autumn Statement seems likely to lead to lower public spending and/or tax rises to reduce the budget deficit. Unusually, this tightening of fiscal policy will occur at the same time as rising interest rates. The combined effect will act as a drag on economic growth over the short term.

Tax Reform Bill: what some MPs are proposing

The Chancellor has said decisions of “eye-watering difficulty” will be required, both on spending and taxes, to ensure that there is confidence in the public finances. In the meantime, government departments are drawing up ways to find efficiency savings within their budgets. The Chancellor is “not taking anything off the table, whether that means tax increases or spending reduction,” said a House of Commons statement.

Liz Saville Roberts, Plaid Cymru MP for Dwyfor Meirionnydd said she will be presenting the Tax Reform Commission Bill this week – which seeks to assess the impact of the tax system and make recommendations for reform.

In a letter she penned for The House (Politics Home) she proposed the extension of the same National Insurance Contribution rates that are applied to earnings from employment to income that is received from holding investments – such as dividends, rent, and interest on savings. In her estimations that could raise an additional £8.6bn every year.

She wrote: “Why not look at reforming National Insurance? Contributions could be equalised for higher earners, with academics at CAGE Research Centre suggesting that a full equalisation could raise up to £19.7bn.

“Why not implement an expanded and backdated windfall tax? The global norm of profit taxation on oil and gas is 70 per cent – in Norway it is 78 per cent. The UK government could choose to give households certainty for when current energy support packages come to an end in April.”

Saville Roberts also suggests that the government could choose to end the “fundamental unfairness” of the non-dom status which she believes “allows a select few to live in the UK but receive special tax treatment. Abolishing it could raise more than £3.2bn each year.”

@LSRPlaid‘s Tax Reform Bill claims it will examine options for a fairer tax system by:

  • taxing income from investments could raise £8.6bn a year
  • equalising National Insurance for higher earners could raise up to £19.7bn
  • abolishing the non-dom status could raise more than £3.2bn
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