Haggis, neeps and taxes

Haggis, neeps and taxes

From:  

One thousand and seventy-four pounds: that’s the extra tax someone in Scotland earning £75,000 is now paying every year for the privilege of living north of the border.

For those on £50,000 the figure is £824 while for those on £35,000 it is £90.

These figures are a combination of higher income tax rates set by the SNP government in Scotland and tax cuts which have come into force in the rest of the UK.

It is already clear some freelancers have set up their own companies as a result of the tax rises, preferring to pay corporation tax at a UK rate than be saddled with higher Scottish income taxes.

As a result, this one income tax change is likely to have increased the rate of business growth in Scotland, something the SNP government will no doubt celebrate without quite appreciating the irony.

When Nicola Sturgeon is asked why Scots should pay more in tax than their counterparts elsewhere, she often cites the extra benefits Scots receive. These include free tuition at university, free personal care for the elderly and free prescriptions.

All these universal benefits help play into the impression that Scotland is not just different but is more Scandinavian than England - with higher taxes but better public services.

This perception, which the SNP does all it can to promote, highlights perfectly the growing tension between the Scottish government’s unashamedly euro-friendly approach and the stance taken by the UK government, which is anything but Eurofriendly.

But, as everyone who pays even the most cursory glance in Westminster’s direction will know, while the Conservative government is driving the UK out of the EU, it hardly has a settled view on the way forward.

Indeed, it is the deepening and damaging rift at the heart of the Conservative party in Westminster over Brexit which is overshadowing absolutely everything in politics, in all four corners of these islands.

One Conservative MP described the atmosphere in the Commons as “hateful, poisonous and awful”.

That MP, a soft leaver, has such a big majority that he has a job for life, if he wants it. But even he is thinking of quitting such is the destructive nature of politics at Westminster at the moment.

Those deep divisions are causing odd alliances too. In Scotland, the Conservatives have publicly appealed to the SNP to back Theresa May, warning that failing to do so could precipitate a ‘no deal’ Brexit.

To put this in perspective, this is a Scottish Conservative party asking its greatest political enemies to back its prime minister, against elements in its own wider party.

In any other time, such an intervention would be an extraordinary step but, in the context of the political chaos that is Brexit, it barely represents a footnote.

Unfortunately, there is so much noise around Brexit that many people outside Westminster have switched off: they have heard so many contradictory warnings from both camps they are listening to nothing at all now.

But this matters: particularly to freelancers and everybody running their own businesses.

That is because, whatever happens with Brexit, the economy is going to contract, at least in the short term. If the big corporations have less money, there will be less work for individual contractors.

Brexiteers insist that things will get better over time and that the UK will boom again after the readjustment of leaving the EU has fed through the system, and they may be right.

But the most sobering part of this for freelancers is that they could be hit first, and hit hard. Everybody who has worked for themselves knows that, for most companies, the easiest budget to cut is the freelance one. 

Freelancers may be best placed to react flexibly to Brexit but they also might be the first ones to feel the effects of an economic slowdown.

The usual advice for any business heading for a period of turmoil is to prepare well in advance but that is impossible in this situation because no-one, absolutely no-one, knows what’s going to happen.

Given all that, making the decision to set up a limited company to avoid Scotland’s higher income tax rates, might not seem like the most important decision a freelancer can make this year.

But at least it is a positive course of action and, while all else is in turmoil, that may be a small thing – but at least it’s something.

By Hamish Macdonell, Scottish Political Editor for The Times

Lobby