The Treasury has announced that it will continue to charge self-employed people Class II National Insurance Contributions (NICs), despite promising that the tax would be scrapped in April 2018. The move is set to net the Treasury more than £350 million annually in the three years to 2021, FSB says.
In a statement, the Exchequer Secretary to the Treasury, Robert Jenrick said that, whilst change was originally intended to simplify the tax system for the self-employed, it had “become clear” that the change would have an unbalanced impact on self-employed individuals with low profits.
“Having listened to those likely to be affected by this change,” Mr Jenrick says, “we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.”
Trying to address the concerns would have meant “greater complexity to the tax system, undermining the original objective of the policy”.
However, the Federation of Small Businesses (FSB) has warned that the move raises serious questions about the Government’s commitment to supporting the self-employed.
FSB National Chairman, Mike Cherry, says: “The self-employed community has been let down, missing out on a promise to reduce their tax burden. The move is extremely disappointing and flies in the face of tax simplification.
“Class II NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up. Once you’ve reached a minimal income, there’s no tapering or means testing in place at all.
“As things stand, you can be earning below the living wage and still paying two sets of NICs as a self-employed person. All the while you’re wrestling with a Universal Credit system that’s trying to strong-arm you into full-time employment.”
Mr Cherry goes on to say that, rather than hitting more than 3 million self-employed people with this levy, the Treasury should have “worked harder” to establish more effective ways to protect around 300,000 low-earners and maintain their contributions for the state pension.
“The self-employed were promised in no uncertain terms that this niggling tax would end, but have been left high and dry: little thanks for the £270 billion they contribute to the economy each year, Mr Cherry adds. “Our sole traders take risks to provide the flexibility and on-demand expertise that keep our economy growing. It’s about time that contribution was properly recognised.”
The FSB has confirmed that they are in discussions with the Treasury to establish new measures to support the self-employed, such as around skills and training.
Whilst the political environment remains convoluted and confrontational, our experts at Beavis Morgan understand the demands placed on individuals and businesses. We are readily available to provide you with the right advice and solutions to help you improve your net worth and increase growth and profitability.
Contact your usual Beavis Morgan Partner for further information about how we can assist you and your business. Our experts are available to guide you through the tax maze and help you with bespoke solutions to ensure that you and your business are as tax efficient as possible.