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| Few will spot the difference in national insurance – at first | Few will spot the difference in national insurance – at first |
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| Is the tax rise for the self-employed a harsh new burden on gig economy workers? A hit on the “strivers” setting up businesses crucial for the economy? Or is it high time the self-employed paid their proper share of taxes? It’s just possible all could be true. | Is the tax rise for the self-employed a harsh new burden on gig economy workers? A hit on the “strivers” setting up businesses crucial for the economy? Or is it high time the self-employed paid their proper share of taxes? It’s just possible all could be true. |
| Make no mistake, this is a big change in UK tax policy (and a major manifesto U-turn). In cash terms it will appear pretty negligible in its first year, but within five years it will be raking in an extra £2bn a year for the Treasury. | Make no mistake, this is a big change in UK tax policy (and a major manifesto U-turn). In cash terms it will appear pretty negligible in its first year, but within five years it will be raking in an extra £2bn a year for the Treasury. |
| Let’s say you’re an Uber driver making £25,000 a year. Your national insurance bill will rise by just £20 in 2018-19. So it doesn’t really mean, at first, a harsh new burden. Indeed, Hammond said anyone making less than £16,250 will actually be better off. | Let’s say you’re an Uber driver making £25,000 a year. Your national insurance bill will rise by just £20 in 2018-19. So it doesn’t really mean, at first, a harsh new burden. Indeed, Hammond said anyone making less than £16,250 will actually be better off. |
| In truth there is a lot of jiggery pokery going on with NI in 2018-19. Class 2 NICs, paid by those on the lowest incomes and currently charged at a flat rate of £2.80 a week, are going to be abolished, while class 4 NICs, the standard rate of NI for the self-employed, are going up from 9% to 10%. It means few people will really spot the difference at first. | In truth there is a lot of jiggery pokery going on with NI in 2018-19. Class 2 NICs, paid by those on the lowest incomes and currently charged at a flat rate of £2.80 a week, are going to be abolished, while class 4 NICs, the standard rate of NI for the self-employed, are going up from 9% to 10%. It means few people will really spot the difference at first. |
| But from year two, the figures start to look more painful. Our Uber driver on £25,ooo will be expected to pay £168 extra. If you are, say, a plumber on £50,000 a year, the extra NI will be £220 in year one, then £368 in year two. | But from year two, the figures start to look more painful. Our Uber driver on £25,ooo will be expected to pay £168 extra. If you are, say, a plumber on £50,000 a year, the extra NI will be £220 in year one, then £368 in year two. |
| Few people expect it to stop there. Standard PAYE employees pay NI at 12%. Hammond is edging up the self-employed rate from 9% to 10% for 2018-19, then to 11% for 2019-20. Equalisation at 12% must surely follow soon after. | Few people expect it to stop there. Standard PAYE employees pay NI at 12%. Hammond is edging up the self-employed rate from 9% to 10% for 2018-19, then to 11% for 2019-20. Equalisation at 12% must surely follow soon after. |
| Neither is it just traditional self-employed tradespeople in Hammond’s sights. A swath of middle-class high earners, especially in the media industry, have reduced their tax bills by arranging to be paid through personal service companies. But from next year they will be forced to pay an extra £975 a year in tax, after Hammond also reduced the tax break on paying yourself through dividends. | |
| Men will be hit worse than women by the NI changes. That’s because 79% of full-time self-employed workers are male. On the other hand, women outnumber men by three to two when it comes to low-paid, part-time self-employed work. Hammond is taking a gamble that Britain’s electricians and plumbers aren’t going to let a £300 tax hike push them into Jeremy Corbyn’s arms. | Men will be hit worse than women by the NI changes. That’s because 79% of full-time self-employed workers are male. On the other hand, women outnumber men by three to two when it comes to low-paid, part-time self-employed work. Hammond is taking a gamble that Britain’s electricians and plumbers aren’t going to let a £300 tax hike push them into Jeremy Corbyn’s arms. |
| There was instant condemnation about the NI hikes from some tax planners, including a warning it would have an “emotional impact on self-starters”. Others argue that the self employed don’t get the luxury of paid annual leave, employer pension contributions or enhanced parental leave pay, and must support themselves through periods of no work. | There was instant condemnation about the NI hikes from some tax planners, including a warning it would have an “emotional impact on self-starters”. Others argue that the self employed don’t get the luxury of paid annual leave, employer pension contributions or enhanced parental leave pay, and must support themselves through periods of no work. |
| Yet too many taxpayers will know family members or former colleagues who have set up on their own and are gleefully paying a much reduced tax bill. It was justifiable, perhaps, when the self-employed could only qualify for the basic state pension, while employees paying higher NI qualified for the top-up state pension as well as the basic one. But in future, the self-employed and the employed will receive the same state pension, so long as they pay NI for 35 years. Why should one group pay less than the other, for the same benefit? | Yet too many taxpayers will know family members or former colleagues who have set up on their own and are gleefully paying a much reduced tax bill. It was justifiable, perhaps, when the self-employed could only qualify for the basic state pension, while employees paying higher NI qualified for the top-up state pension as well as the basic one. But in future, the self-employed and the employed will receive the same state pension, so long as they pay NI for 35 years. Why should one group pay less than the other, for the same benefit? |
| As tax manager Chris Summers of accountants BDO says: “Although bad news for those individuals affected, it does level the playing field. Aligning NIC takes tax out of the decision-making process for people choosing whether to be employed or self-employed.” | As tax manager Chris Summers of accountants BDO says: “Although bad news for those individuals affected, it does level the playing field. Aligning NIC takes tax out of the decision-making process for people choosing whether to be employed or self-employed.” |
| Should the chancellor go further? Hammond hinted this was just a first step to ironing out anomalies between how different groups are taxed, with the Taylor review into employment practices in the offing. | |
| But few expect him to tackle another anomaly in our tax system that grows worse year by year. Successive chancellors love to say how many millions of people they have lifted out of income tax, with Hammond reiterating that the threshold will rise to £12,500 in this parliament. What they don’t say is how more and more people are being drawn into national insurance, where the threshold, at £8,164 from April, remains stubbornly low. | But few expect him to tackle another anomaly in our tax system that grows worse year by year. Successive chancellors love to say how many millions of people they have lifted out of income tax, with Hammond reiterating that the threshold will rise to £12,500 in this parliament. What they don’t say is how more and more people are being drawn into national insurance, where the threshold, at £8,164 from April, remains stubbornly low. |