Have your say on Making Tax Digital and proposed changes to National Insurance

8 March 2017

As the Government pushes ahead with major changes to the way tax for self-employed people is calculated and reported, we are very concerned about the impact these changes will have on our members.

We’ve prepared a template letter for you to download, adapt and send to your local MP, to help raise awareness of key concerns that have been raised about the changes. It is vital that as many politicians are made aware of the issue as possible.

Download the template letter

Finance Bill 2017

The Finance Bill 2017 will contain two pieces of draft legislation which, in their current form, will hit authors particularly hard:

  • Making Tax Digital (MTD), with its demand on businesses and self-employed people with turnovers more than £10,000 to file a quarterly tax return.
  • The abolition of Class 2 National Insurance contributions, which will lead to a fivefold increase in the cost of pension contributions for self-employed people earning (at present) less than £5,965 per year.

A third piece of draft legislation - the proposed increase of Class 4 National Insurance contributions for the self-employed, announced in the Spring 2017 Budget - has already been withdrawn following an outcry from self employed individuals and politicians.

There is currently a great deal of uncertainty about exactly how or whether the MTD regime will work, and the chair of the Treasury Select Committee has said that the proposed timetable "looks unachievable".

In the meantime, we know that many of you have been left in limbo, unable to prepare for the changes.

Concerns

We understand that oral evidence on the impact of the Finance Bill 2017 is still being collected by the Economic Affairs Finance Bill Sub-Committee, so we urge members to ask their MPs to raise these concerns with fellow MPs, ministers and civil servants.

Timetable

The current timetable for implementation is widely viewed as too short. As recommended by the Treasury Select Committee, we believe that the current timetable should be extended to 2019 to ensure that any new regime can be properly piloted, and its potential implications understood, with no penalties until it is shown to work.

Threshold

MTD will oblige any business or self-employed person whose annual income exceeds £10,000 to file quarterly returns. This was the threshold that was originally announced but is being re-considered, with a view to increasing it. Given that the average UK author income is £12,500, this threshold is far too low and is likely to put a disproportionate administrative and expense burden on lower paid self-employed people. Remember that this is based on turnover, not the profit that remains after expenses have been paid. In line with Treasury Select Committee recommendations, we believe the minimum threshold should be brought in line with the VAT registration threshold of £83,000.

Increased overheads

The FSB estimates that the changes will cost the average small business an average of £2,770 a year, in addition to the amounts that we already spend on tax advice. The Government has estimated this is more likely to be “a one-off transitional cost of £280 per business”, but with authors already struggling to make a living from their work any additional expense is likely to cause hardship to many.

Exemptions

We understand that HMRC is considering exemptions to the proposed changes. Many authors have variable work patterns and an unpredictable income, which means that some years they may earn significantly more than the threshold but other years significantly less. We believe this will lead to confusion about which years those authors are obliged to file quarterly and when they are not.

Digital exclusion

Many members of the Society of Authors, although earning from their work, do not possess the digital skills or equipment necessary to engage with MTD, and at this stage in their careers are unlikely to do so. It is unclear what advice, training or additional assistance they will receive to ensure they do not incur unnecessary penalties. We hope that those who are digitally excluded through a lack of skills or equipment will not be treated detrimentally, for example with shorter deadlines as happens with self-assessment.

Abolition of Class 2 National Insurance

While MTD is set to affect authors earning more than £10,000 per year, those earning less than £5,965 per year will be affected by the abolition of Class 2 National Insurance contributions. These lowest earners currently pay £2.80 per week in contributions that count towards their state pension, opting in to a system that allows them to contribute towards their retirement at an affordable rate despite their modest means. From April 2018, the contributions needed to secure a future pension will increase to £14.10 per week – representing at least 12% of their annual income.

The Tax Gap figures from HMRC report a loss of £8.7bn from mistakes caused by failure to take reasonable care. That is a lot of money, but the numbers for the hidden economy, evasion and criminal attacks add up to £16.2bn. That is almost twice as much due to criminal activity as arises from honest businesses struggling to make ends meet in a complex tax system.

The Government must consider whether these measures are the best way to narrow the Tax Gap and whether small businesses will be shouldering an unfair burden.

Write now

Given that these changes are likely to place a considerable burden on many self-employed workers, in particular those on lower incomes, this is a good opportunity to raise awareness amongst our politicians of the impact the changes will have and for an increase in the MTD registration threshold to £83,000.

Download the template letter

This article was amended on 16 March 2017 following the Government's u-turn on proposed increases to Class 4 National Insurance contributions.

COMMENTS

Prudence Jones (22/04/2017 10:09)
" PS: I think we can also send our letter to the Chancellor, Philip Hammond. Ministers, unlike other MPs, are obliged to read letters that do not come from their own constituents, as long as these relate to their area of ministerial responsibility.

We could also try the Chief Secretary to the Treasury, David Gauke."
Elizabeth Buchan (22/04/2017 10:03)
" Have sent off the letter. Thank you for doing this"
Prudence Jones (22/04/2017 09:50)
" Quarterly tax returns also create four deadlines - no doubt with financial penalties - when at present, effectively, I have none. My accounting year ends in September, giving me at least a year before having to file the tax return that includes those figures. Suppose any of us are out of the country doing research at one of the four deadlines? How are we supposed to fill in a tax return then? What fantasy world do HMRC live in? Perhaps, with such a capacity for wishful fiction, they should join the SoA!"
Melanie Reinhart (21/04/2017 10:28)
" Thanks so much to all at the Society who were involved in putting together this campaign letter. Perhaps I'm not the only one who has been fretting about it, but was unsure how best to take action [i.e. being a bit of an 'ostrich'].

[Reply to David McDowall] - Brilliant idea to send it to one's accountant and ask that it be distributed! I shall be doing likewise."
Karl Drinkwater (30/03/2017 04:32)
" Well done putting this together, especially the template letter. I've linked to it from http://www.karldrinkwater.uk/2017/03/uk-state-pensions-for-writers-class-2.html
- hopefully if we all speak up now, we might be able to get them to consider the full implications for anyone on a low income (which often includes authors!)."
Rebecca Reynolds (27/03/2017 02:25)
" I will be sending this letter to my MP, thank you. Well done to Society of Authors for campaigning on this.

I only wish tax-avoiding multinationals were squeezed with the same rigour as the self-employed."
David McDowall (24/03/2017 10:31)
" I am sending a copy of this pro forma letter to my accountant, asking him to ask all his clients to lobby their MPs."
Elizabeth Laird (24/03/2017 10:02)
" Thank you to the Society for this. We urgently need your support. This is a crazy initiative by a government who has no understanding of those struggling on low incomes.

The letter is perfect, and I've sent it to my MP."
annie burrows (18/03/2017 11:24)
" I would love to be a part of this campaign. Unfortunately, the template letter you have suggested I download is in a docx format which I cannot access due to my ancient word processing package."
Maria Donovan (17/03/2017 10:15)
" I'm delighted that the Society of Authors warns us about these issues. I was beginning to think no one had noticed that scrapping Class 2 NICs would be a problem for those with low earnings and patchy NIC records, particularly now that the rules about claiming a spouses 'unused' years of contribution towards a state pension (due to dying before they reached pension age) have been changed. Everyone must rely on their own National Insurance record or risk losing entitlement to a full state pension. Gaps because you followed earlier advice and applied for a certificate of exception to pay Class 2 NICs now have to be filled at the higher, Class 3, rate."
Rachel Morris (15/03/2017 11:01)
" (In reply to Miranda Fyfe) True, those earning less than £5,965pa don't have to make NICs, but they may find themselves with a State Pension shortfall if they don't opt in. As stated in the article above, "opting in to a system that allows them to contribute towards their retirement at an affordable rate despite their modest means".
Generally speaking, the advice is that it is best not to have gaps in your NIC record if you are self employed. So, in my view, the Society of Authors got the wording pretty spot on.
If anyone is interested, there's more information about Voluntary National Insurance here: https://www.gov.uk/voluntary-national-insurance-contributions"
Miranda Fyfe (14/03/2017 09:47)
" This article (and the template letter) is in a muddle about who is affected by Class 2 NICs: it is all those earning *over* the £5,965 threshold who pay their £2.80 per week, not those earning under that amount as stated.

Those earning under £5,965 do not have to pay any NICs (though they can do voluntarily if they want to). Perhaps what they will have to pay is changing, but not in the way described here - I suggest the Society of Authors should get its financial facts absolutely straight before it recommends all its members to bother their MPs about this."
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