NI hike for the self-employed.
If you've been keeping a weather eye on Chancellor Philip Hammond's budget announcements recently, you've probably already spotted the storm brewing. Despite a manifesto pledge not to increase the rates of National Insurance, we're about to see the Class 4 rate increased to 10% next month. A year after that, we'll be seeing another rise to 11%. It's come as a shock to many self-employed people, some of whom were actually expecting to see a drop in the NICs they paid.
According to the Chancellor, it's part of a push to increase fairness in the taxation system. The self-employed pay Class 2 and 4 NICs instead of the Class 1s that hit employed workers, so this move targets them specifically. The increases might seem quite small, but they're going to mean 1.6 million self-employed people being clobbered with an average National Insurance bill £240 higher than they expected. The government's hoping to score an extra £145 million a year by 2021-22 with this move, but the "fairness" argument is already coming under attack. The self-employed, for example, have far fewer rights and benefits than those in more conventional employment. For example, sick pay, maternity/paternity leave and several other key protections simply aren't part of the self-employment landscape.
Putting all this in perspective, not all the news is bad. According to the government, self-employed people making under £16,250 will actually pay less as a result of the changes. The tax-free Personal Allowance threshold, which is the amount of income you can earn before paying tax on it, is rising to £11,500, and then again to £12,500 by 2020. What's more, Class 2 NICs are set to be scrapped altogether in April 2018.
Those arguing against the rate rise are calling it a "tax raid" on the self-employed. For a while now, the government has been cracking down on what it calls "false self-employment". Firms like Uber, Deliveroo and even the BBC have been affected. It's been a deliberate push toward getting self-employed people's work conditions assessed. If they're found to be working "as if employed", then they way they're taxed is changed to reflect that. There can also be penalties for the companies involved. It's difficult not to see the NIC changes as a reflection of the same strategy.
For small businesses, keeping their tax affairs efficient has always been a key concern. Right now, particularly at the "micro-business" end of the scale, there are worries that this is becoming increasingly difficult. Many people simply aren't in a position to be able to hire accountants for their businesses or to get help with tax returns. This, of course, is one of the drums RIFT has been beating since we started up. On-payroll accountants are out of reach for many small business owners, and external ones charge painful hourly fees with very little in the way of detailed, personal attention for their clients. With RIFT, you're never just a number on a profit and loss record.
Get in touch if you're concerned about what the new budget announcement means for you, and listen out for more Voices from the RIFT...