You are here: Home - Household Bills - News -

BUDGET 2017: Tax hikes for self-employed workers

0
Written by: Paloma Kubiak
08/03/2017
Self-employed people will have to pay more in national insurance contributions from April 2018, the chancellor has confirmed.

Self-employed people currently pay Class 2 national insurance – £2.80 per week on annual earnings of £5,965 or above – and Class 4 national insurance which is 9% on earnings between £8,060 and £43,000, and 2% on anything above £43,000.

Class 2 NICs will be scrapped from April 2018 and today, chancellor Philip Hammond announced that Class 4 NICs will increase from 9% to 10% from April 2018 and by a further 1% to 11% in 2019. The Treasury confirmed there will be no change to the 2% rate for earnings over £43,000 – it remains in place.

He said the average cost for those affected will be 60p a week.

Hammond drew comparisons between the NIC rates paid by an employee and a self-employed worker. He said an employee earning £32,000 will incur between him and his employer £6,170 of NICs while a self-employed person earning the equivalent will pay just £2,300.

Hammond said: “People should have choices about how they work, but those choices should not be driven primarily by differences in tax treatment.

“Historically, the differences in NICs between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits. But with the introduction of the new state pension, these differences have been very substantially reduced.

“Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system. Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way. That is not fair to the 85% of workers who are employees.”

Tax hike won’t be popular but was expected

Hargreaves Lansdown calculates that a self-employed worker earning £30,000 will pay £282 more NICs in 2019 than in 2016.

Tom McPhail, head of retirement policy, said: “Ever since the state pension changes of 2016, when self-employed workers’ state pensions were brought into line with employees’, this reform has been on the cards.

“This tax hike won’t be popular with the self-employed, though it’s designed to balance out the long-term windfall they received as a result of the new state pension scheme.”

McPhail said that he would like to see the government continue to improve pension provision for the self-employed by bringing them into auto-enrolment, via the self-assessment tax system.

Steven Cameron, pensions director at Aegon UK, said despite state pension changes for the self-employed, employees receive other benefits such as statutory maternity and sick pay from the NI system which the self-employed and those in the gig economy don’t qualify for.

“Looking wider, more needs to be done to close disparities inherent in the current gig economy, and between the employed and the self-employed. Within pensions, we need to find a solution equivalent to auto-enrolment for the self-employed to halt the growing retirement income divide we’ll otherwise face between them and their employed peers when they come to retire. One way forward to soften the blow would be to ‘rebate’ part of the increase in NI into a private funded pension of the self-employed individual’s choice, along the lines of auto-enrolment for employees.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2244234-children1
BUDGET 2017: Childcare scheme saving families £2k a year launching next month

Working parents will be entitled to receive £2,000 a year towards the cost of childcare for each child under 12...

Close