Chancellor Philip Hammond has announced changes to rules surrounding national insurance contributions (NICs) for self-employed people.
In his Spring Budget announcement to the House of Commons on 8 March, Hammond introduced incremental increases to Class 4 NICs the rate of national insurance contribution that is based on an individual’s annual earnings over the course of this parliament.
Currently, self-employed people pay nine per cent NICs on their annual earnings above 8, 060, compared with 12 per cent for employees at companies. In his speech, Hammond announced that this rate would increase to ten per cent in April 2018, and ultimately to 11 per cent in April 2019.
These changes would create a new lower threshold on which self-employed individuals are required to pay more in NICs, aligning it more closely to that of salaried workers.
The chancellor claimed that the changes, combined with the government’s intended abolition of Class 2 NICs in April next year, would mean that only self-employed people turning a yearly profit of more than 16, 250 would see their NICs increase, protecting those self-employed earning the lowest.
George Osborne, the former chancellor, announced the abolition of Class 2 NICs a tax paid only by the self-employed based on the number of weeks of self-employment in a year last year, to further simplify the tax system for the self-employed.
In his speech on 8 March, Hammond said: The combination of the abolition of Class 2 and the Class 4 increases I have announced today, raises a net 145m a year for our public services by 2021-22, an average of around 60p a week per self-employed person in this country.
this change reduces the unfairness in the NICs system and reflects more accurately the current differences in benefits available from the state.
The changes to NICs can be seen as government acknowledgment of an increasing trend towards self-employment in Britain. In 2016, the number of self-employed workers increased by 213, 000, totaling 15.1 per cent of the total workforce, according to the Office for National Statistics (ONS).
Hammond expressed a concern that the trend is not only to do with increasing rates of entrepreneurialism and progress in the gig economy, but also to do with tax avoidance.
He added: ‘since 2016, self-employed workers now build up the same entitlement to the state pension as employees a big pensions boost to the self-employed. People should have choices about how they work, but those choices should not be driven primarily by differences in tax treatment.
Entrepreneur Ed Molyneux is concerned about the changes, and said: We are worried that the government increasingly sees the self-employed as an easy target. It is very unfair to position freelancers and contractors as not being on a level playing field with those who are employed.
these business owners have none of the employment rights or the security that employed workers do and there must be some recognition for that unless they want to cripple this very important and growing part of the UK economy.