In a recent announcement of the Spring Budget, Philip Hammond has revealed an increase in the National Insurance Contributions (NIC) for self-employed, particularly in their Class 4 NIC. Not exactly good news for those people who have to cough up the increased amount.
As indicated in the Budget 2017, from April 2018 NIC for self-employed will increase to 10% from the current 1%. A year after, there will be another 1% increase. This move is to ensure that NIC for employees and self-employed are almost at a similar level. Currently, the rates are at 12% and 9% for employees and self-employed, respectively. On the bright side, when the NI rates are similar, both will have access to state benefits.
But, is there really an advantage in the Spring Budget for self-employed?
An increase in Class 4 NIC means:
• An average of 60p per week will be squeezed out of the self-employed
• The number of self-employed adults with a pension will drop significantly, considering that the current number is only at 17% when the NIC is at 1%.
• The number of self-employed families without savings will increase from the current one-third.
Based on the information above, self-employed people in the society – freelancers, lone traders, accountants, cab drivers, cleaners, hairdressers, IT contractors, plumbers, and the like are definitely going to feel the noose getting tighter.
This is especially true for lone entrepreneurs with seasonal businesses, where revenue is low, but the average 60p/week is constant. And, unlike employees in the PAYE system, self-employed income varies for many reasons and therein lies the problem.
Tax Advice For The Self Employed:
Find out more about Self Employed Tax Returns
Get help with our Self Assessment Tax Return
The government, however, stands to gain more what with self-employed individuals on the rise. From 8.7% self-employed workforce in 1975, the number is now at 16% and rising. More women and people over 65 are now self-employed as well. The 10% increase in NIC from the estimated 4.8 million people will definitely add up to a staggering amount.
But the injustice, if it can be called as such, doesn’t stop with an increase in contributions. Changes in the Corporation Tax also proves that the budget favours big companies, but hardly extends a lifeline to self-employed individuals. This is because corporation tax will be cut by 19% from April 2017 and further reduced to 17% in 2020. So, if you use Uber as an example. The company will enjoy tax cuts, but its drivers won’t.
This only showed that the Spring Budget is what Margaret Thatcher calls a “disastrous vendetta against small businesses and the self-employed” during a speech in 1975. And John Major is likely to be saying I told you so since he warned people against being self-employed during a 1992 speech.
Self-employed in the society need access to new insurance models that are unique to their needs, help with parental leave, coverage for when they are sick, easier access to mortgages, and more options for retirement plans. The way things are, however, they’re likely to gain less but pay more.
For the self-employed, the Spring Budget has more disadvantages than advantages.
Think you may have been overpaying tax? Find out here