Increases in taxation generally impact negatively on economic growth. This is a fact, backed-up by economic theory and research evidence. The overall tax burden in the UK is way above the Organisation for Economic Cooperation and Development (OECD) average, and, whilst most industrialised nations have been cutting tax burdens, the UK tax regime is so awesomely complex that not even its HMRC enforcers claim to understand it all!
Not only are UK taxes high, but they are so unpredictable that international tax experts describe the UK’s tax regime as ‘unstable’, a term once commonly used to describe the regimes of tyrannical despots in ‘banana republics’. For these reasons, numerous major corporations have relocated outside of the UK and many more are threatening to do so. That’s not an option for most small businesses and many contractors whose clients are UK based.
The latest set of tax changes have not only been huge, but they have also been the most complex we have seen since ContractorCalculator’s pioneering work in publishing the first IR35 tax calculator and general tax calculators for contractors and freelancers.
Working through the tax changes introduced by Alistair Darling whilst updating our various calculators, it has become clear how the Chancellor’s latest measures have resulted in major structural changes to how personal taxes are calculated for contractors. The changes that will hit successful contractors hardest include:
- Diminishing personal allowances for those earning over £100,000
- The new 50% tax band
- The new dividend tax at 42.5% for dividend income over £150,000.
As the first website to have made the complex changes to our contractor tax calculators, ContractorCalculator can offer contractors the chance to see just what impact the Budget will have on their business profitability and personal income.
The level of complexity of the changes can be judged from the fact that it has taken two weeks of development time to develop and test all the new calculators. The calculators are subjected to almost a thousand individual regression tests to ensure they perform accurately 24/7. That’s a cost our business has had to absorb and write-off – there are no opportunities for increased revenues, as the calculators are a free service to the contracting community.
Similarly, businesses throughout the UK will be undertaking major overhauls of their payroll and accounting software. Contractor accountants will be updating spreadsheets and distributing them to hundreds of thousands of limited company contractors, and that’s not to mention all the other small businesses in the UK, and their payroll operations that need to change. Service providers will pass these costs onto their customers, meaning higher costs for businesses and contractors. This is time and money we should be spending developing our businesses and making the UK more productive and competitive. That’s what will restore the UK’s finances to health – not more tax.
What’s really scary is that we may all be doing exactly the same again in a couple of months, when our next government holds another budget to introduce all the measures they were afraid to announce before they became elected. And whichever party wins, their changes will almost certainly include more new taxes and amendments to existing ones.
Every time taxes increase, we’re not just paying a greater burden of taxation – we’re actually paying for the privilege of doing so! Tax increases cost businesses much, much more than just increased tax.