The Chancellor, Phillip Hammond, has received a frosty reception from the entrepreneurial community to his budget, announced today.

What he announced

The chancellor said: "I will always encourage and support the entrepreneurs and the innovators who are the lifeblood of our economy. People should have choices about how they work, but those choices should not be driven primarily by differences in tax treatment." and then he announced a hike in the Class 4 NIC rate for the self-employed by one percentage point to 10 per cent, with a further one per cent increase in April 2019.

In a further measure to affect entrepreneurs, he cut the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.

On the other hand, he announced some measures to support businesses which are hit by business rates, with one particular reform aimed at publicans.

But the entrepreneurial community was not impressed.

Unemployment is an alternative to being self-employed

Alice Weightman, Founder and CEO of The Work Crowd pointed out that "eight out of ten economically inactive people, such as carers, retirees, stay-at-home parents and those with health or mobility issues, would re-enter the workforce if they could do so flexibly." she said "Self-employment and particularly freelancing allows them to do so, working from home and with hours that suit them. " She added:"Freelancing also has the potential to bring new employment opportunities to diverse areas across the country, with technology enabling individuals to work from anywhere, serving businesses all around the world. "

The self-employed and lack of benefits

Chas Roy-Chowdhury, head of tax at ACCA, came at this from a different angle, but had much the same conclusion. He said: "Self-employees are subject to a lower national insurance contribution (NIC) because they do not receive the same entitlements and benefits as their employed counterparts – such as holiday and sick leave. Before this tax is raised, the government needs to think carefully about ways to align the level of benefits."

The self-employment plunge begins to look more daunting

Ian Cass, Chief Executive of the Forum of Private Business said: “If there are no incentives for small businesses this would lead to fewer people taking the plunge into self-employment and job creation, and opting simply to be employed. That would be bad news both for the UK economy and for the jobs market. The immediate National Insurance changes announced will already have some prospective small businesses and small employers thinking twice.” He concluded: "This government continues to neglect the small business sector at a time when they need them, to help get Britain trading more productively."

Effect on SMEs

Returning to Alice Weightman, she said: "The rise in National Insurance contributions will make freelancing a more difficult option for these people, potentially pushing them out of work. After all, the self-employed are already missing out on maternity pay, employee benefits and the job security that permanent employees enjoy. There’s also the danger that it could drive the freelance economy out of the UK altogether, making it too expensive to make a living here. For many, freelancing is the first step on the ladder towards starting a fully-fledged business, employing staff and driving our economic growth. Furthermore, start-ups and small businesses have become reliant on freelancers as a flexible and affordable source of talent. It isn’t always economical for businesses to hire staff on a permanent basis and freelancers provide an invaluable service to these companies, supporting growth and innovation with their expertise. The tax rise for freelancers will be counterproductive, either driving individuals to stop working independently, or driving up costs, impacting the SME’s and startups that are key to the UK economy. "

And she concluded, "The self-employed need more support and engagement, not more taxes."

Chas Roy-Chowdhury said: "In a time when we are trying to encourage innovation and create a Britain that is ‘open for business’, we should not be creating barriers to entrepreneurship and self-employment."

And Ian Cass argued that “business owners are already facing increased costs from auto-enrolment, digital tax, and business rate increases. Combined these will have a negative impact on profits. Increasing the tax rate on dividends for business owners is just another blow to the UK’s risk-taking entrepreneurs. These are the very people who create growth and employment, and continuing to increase both regulatory and tax burdens on them while removing rewards is hardly smart.”

Self-employed and pensions

Steven Cameron, Pensions Director, Aegon UK, said that the chancellor's justification for the planned rise in NI paid by the self-employed, "would have been easier to use had the changes to NI happened at the same time as changes to state pension entitlements." He continued: "In addition, employees receive other benefits such as statutory maternity and sick pay from the NI system which the self-employed and those in the gig economy don’t qualify for." He concluded: "Looking wider, more needs to be done to close disparities inherent in the current gig economy, and between the employed and the self-employed. Within pensions, we need to find a solution equivalent to auto-enrolment for the self-employed to halt the growing retirement income divide. " He added "One way forward to soften the blow would be to ‘rebate’ part of the increase in NI into a private funded pension of the self-employed individual’s choice, along the lines of auto-enrolment for employees.”

But at least the response to changes to business rates were better received, up to a point. Chas Roy-Chowdhury said: "‘I welcome the news that the government has listened to the serious concerns of the business community around the upcoming revaluation, and has allocated reliefs accordingly. However, I am not sure that these measures will go far enough to address the pressures on our bricks and mortar small businesses. There is just not enough money in the relief fund (£300 million) for local authorities to significantly help hard-hit businesses in their community."

See also: Budget 2017: Reaction and Hammond prepares to punish the self-employed

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