Budget: Hammond hammers self employed with tax rise on NICs

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Sharecast News | 08 Mar, 2017

Updated : 17:27

Self-employed UK workers will pay an extra 1% in national insurance contributions (NICs) from April 2018 with a further 1% piled on top the following year, Chancellor Philip Hammond said on Wednesday.

Delivering his Spring Budget, Hammond said lower contributions from self-employed workers is forecast to cost the public purse £5bn this year.

The measure would raise a net £145m a year, Hammond added.

"Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way," he told MPs.

"The abolition of Class 2 NICs for self-employed people, announced by my predecessor in 2016 and due to take effect in 2018, would further increase the gap between employment and self-employment."

"To be able to support our public services in this budget, and to improve the fairness of the tax system, I will act to reduce the gap to better reflect the current differences in state benefits. I have considered the possibility of simply reversing the decision to abolish Class 2 contributions, but the Class 2 NIC is regressive and outdated. It is right that it should go."

The move was slammed by small business groups, with the Federation of Small Business (FSB) said the move would drive up the cost of doing business.

“However, the National Insurance rise...should be seen for what it is – a £1bn tax hike on those who set themselves up in business. This undermines the government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business," the FSB said in a statement.

"Future growth of the UK’s 4.8m-strong self-employed population is now at risk. Increasing this tax burden, effectively funded by a reduction in corporation tax over the same period, is the wrong way to go.”

Kevin Nicholson, head of tax at PwC, said that the increase was smaller than expected, but the significance of the move should not be underestimated and had "opened up a big potential money spinner" for the Treasury.

"The self-imposed tax lock is tying the Government's hands, as the Chancellor clearly wants to raise money but is committed not to do so from the main taxes of income tax, NIC and VAT. That means other areas of the economy will continue to see increases and tightening. There clearly wasn't scope for a give-away Budget but it would be good to see more attention given to entrepreneurs and wealth creators," Nicholson said.

"It's great to see the focus on long term planning and consultation. But there was missed opportunity to provide a vision how tax can support the industrial strategy and post Brexit Britain more generally. Nor was there anything to simplify tax."

Nicholson's colleague Alex Henderson said the proposal marked a "significant shift in UK tax policy".

"A key feature of the tax system over the last 40 years has been to incentivise entrepreneurship, recognising the risks that come with self-employment. By helping businesses to grow and employ people, governments reap greater tax revenues in the longer term.

Henderson said business owners would now feel they were in Hammond's sights for the rest of the current parliament.

"While the chancellor's logic about removing anomalies in the system is hard to fault, it has an emotional effect on self-starters - the very people the chancellor most needs to rely on. My worry is that by binding themselves with the tax lock, the Government will continue to look at the entrepreneurial sectors of the economy for the tax rises it needs."

Barnaby Lashbrooke, founder of virtual assistant platform Time Etc said the move hit workers "who 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".

"For those reasons alone, self-employed workers should not be expected to contribute the same as employees. The rise in self-employment has little to do with tax avoidance. It's partly the result of a skills shortage – talent is in high demand – as well as advancements in technology that have enabled the sharing economy."


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