Rishi Sunak’s hidden tax raid on the self-employed would raise £1.7 billion for the Treasury
Chancellor Rishi Sunak has been accused of a “stealth tax on the self-employed” after the Budget red book revealed a tweak to how tax will be calculated for unincorporated businesses.
The government plans to reform the ‘basis period’ rules, which determine how trading income for sole traders and partnerships is allocated to tax years.
Currently, self-employed workers submit profits and losses for the tax year up to a specific accounting date, which can be different from the tax year.
The proposals would mean that all reporting would have to correspond with the tax year and would come into force from 2024/25 – in line with the roll out of Making Tax Digital for income tax self-assessment.
Self-employed to face extra £3,000 tax bill
The move would raise £1.7 billion over the next five years for the Treasury, according to the Chartered Institute for Taxation (CIOT). Around half a million (528,000) self-employed people would be hit by an additional £3,000 or more of tax when the rules come into force.
Pete Miller, chair of the CIOT’s owner-managed business committee, said: “This change will mean that affected businesses will pay tax on profits for more than a 12-month period in the tax year 2023 to 2024 as they transition into the new ‘tax year basis’.
“Whilst it will be possible to spread any excess profits over five tax years, the Exchequer impact of the change is significant. Between 2024-25 and 2026-27 it is expected to raise an extra £1.715 billion.
“There will be further impacts over the following two years so the overall impact could be over £2bn. This is a significant acceleration in the amount of tax revenues flowing into the Exchequer.”
Chancellor insists no extra tax rises
Speaking in the House of Commons, Labour’s shadow Treasury minister Pat McFadden slammed the move.
He said: “As well as all the tax rises on income and business the chancellor has announced in the past six months, buried in the Budget ‘red book’ is a plan for a stealth tax on the self-employed of £1.7 billion over the next five years.
“After the past eighteen months when many self-employed people have had no help at all and when they are already being hit with other tax rises, why are the self-employed being hit with this extra tax rise which the chancellor didn’t even mention in his Budget last week?”
Sunak said there were “no extra taxes for the self-employed” in his Budget speech and insisted that the increase was simply because of a “timing difference that was reflected in the Budget scorecard.”
He went on to add: “With regard to the self-employed, take a moment to reflect on the fact that this government provided almost £30 billion of support to millions of self-employed throughout the crisis and I am very glad that we did so.”