Self-employed hit by national insurance hike in budget

 In News

Self-employed people in the UK will soon experience less tax advantages following major changes in the budget.

The decision reverses a Conservative party pledge made back in 2015 with Philip Hammond now announcing that he is to increase NI (National Insurance) contributions for those earning above £16,250 p/a by closing tax benefits that are “no longer justified”. The decision is likely to irk party supporters and backbenchers.

The chancellor announced that any employee currently earning £32,000 p/a faces a new NI bill of £6,170 along with their employer.  Whereas the bill for tje self-employed that earn an equivalent salary would be just £2,300.

“Historically, the differences in NICs between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits,” he said.

“But with the introduction of the new state pension, these differences have been very substantially reduced.”

He then told MPs the adjustment in decision would net the Government a further £145m p/a after taking into account George Osborne’s separate class abolishment of self-employed NI class 2 contributions.

Class 4 NI contributions for self-employed people would increase in the region of 9% to 10% in April 2018 – and then to 11% again in April 2019 – and this would target income at the higher threshold rate of £45,000. These new rates are still lower for employees who pay NI at 12% at the same level while both groups will still continue paying at 2% on income above the higher threshold rate.

As expected, some people are expressing their offence at these new decisions.

Dividend taxation has been criticised  for “leaving the door open to massive tax avoidance” by the wealthier portion of society by lining their own pockets and making the system work for their own companies.  A previous increase in dividend taxes resulted in much of the benefit falling to “just 100 individuals who were able to withdraw dividends averaging £30m each from their companies before the higher tax rate took effect” as shown by new data published by the Office for Budget Responsibility.

The Resolution Foundation, a living standards thinktank welcomed the new NI policy saying: “These tax differences are actually driving the big increase in self-employment we’ve seen in recent years, which in turn is undermining the taxman’s ability to get revenues in.

“To put that in context: 45% of the employment growth since 2008 has been driven by rising self-employment (and no, it’s got very little to do with headlines about the gig economy), with the lower tax take that implies.”

However, the increase has triggered criticisms that the Conservatives are reneging on a 2015 manifesto pledge that committed the government “to no increases in VAT, income tax or national insurance” – while the reception from the business community was less than positive.

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