Freelance and self-employed people on low incomes will be financially burdened by the taxman’s proposal to move a key National Insurance contribution to the 31st January after the tax year, a charity warns.
The view of the Low Incomes Tax Reform Group was put to HM Revenue & Customs in response to a recent consultation which was meant to make NI easier, as implied by its title ‘Simplifying the National Insurance Processes for the Self-Employed.’
But the LITRG argues that the Revenue’s proposal of a post-Christmas deadline for such workers is “untimely,” as it fears that self-employed people who normally pay NI on a monthly basis stand to be ‘unnecessarily handicapped.’
The NI contribution at issue is known as ‘Class 2’ - a regular weekly sum payable by self-employed earners to establish their entitlement to contributory benefits, such as the state retirement pension.
Although the contribution is often collected by monthly direct debit, HMRC wants to move the due date to Jan 31st after the tax year, so collecting Class 2 from the self-employed would coincide with their income tax self-assessment liabilities.
“Whilst we acknowledge that collecting the Class 2 NIC at the same time as self-assessment liabilities may reduce administration time, it must be similarly acknowledged that it is incumbent upon HMRC to take into account the needs and challenges faced by those on low incomes,” said LITRG’s chair Anthony Thomas.
“Collecting this extra amount on 31 January will increase the burden of debt on people on low incomes, and adversely affect their position under the new Universal Credit (as additional costs would be included in January each year for which no relief would be given).
is unlikely to affect the proportion of self-employed people who fail to notify
HMRC that they have ceased employment, a large cause of the discrepancy between
debt and collection, and as a result will do nothing to decrease the amount of
Class 2 debt.”
Thomas added that both the NI system for the self-employed and the Small Earnings Exception – exemption from Class 2 for freelancers on the lowest profit levels – are “poorly understood.”
As a result, he believes that informing self-employed taxpayers of their rights and obligations would be a better use of HMRC’s time and resources than changing their NI system as a whole.
“Our recommendation would be to collect Class 2 NI monthly, as is the case now, or alternatively via the self assessment system in two instalments in January and July,” said the charity.
“This would keep payment in line with current payment dates. The ability to choose either option is clearly a benefit to those on low incomes as a monthly payment plan would be available for those who struggle to pay the larger instalments.”