Self-employed national insurance hike 'won’t be just a short-term sting'
A plan by prime minister Boris Johnson to increase self-employed national insurance contributions won’t sting such freelancers on just a short-term basis, accountants warn.
Rishi Sunak, the chancellor, first mooted the plan to the public in March 2020 when, unveiling the SEISS, he took issue with sole traders contributing less than employees.
But because Mr Johnson will today start ‘selling’ the plan on the basis that NICs need to rise to pay for social care, not to fund covid-19 aid, the hike will be made on a permanent footing.
'This national insurance change won't be a temporary rise'
“As the PM will say it’s needed to pay for social care, rather than to cover the cost of support during the pandemic, this won't be a temporary rise,” warns tax expert Carolyn Walsh.
“Remember, too, that there was to be a staged rise in the NI rates for the self-employed which was shelved, but this will probably be enforced now.”
A former tax inspector and now boss at CWC Accounting, Walsh was referring to Philip Hammond’s previously bodged bid to put up NICs, when he was chancellor in 2017.
'There are other ways to raise revenue'
“There are certainly other ways to go about raising tax revenue,” says Seb Maley of Qdos, sounding lukewarm about the PM’s plan, which could add up to 2 per cent to contributions.
Mr Maley added: “If this materialises, it will mean businesses that engage contractors inside IR35 must pay [at least] another [one] per cent in Employers’ NI.”
Chartered accountant Graham Jenner calculates for FreelanceUK that even at just one per cent, the NICs hike on a self-employed freelancer will impose up to £8 extra every week.
'Freelancers face an up to £8-a-week tax increase'
“This £8 more will hit people sole trading with profits over £50,270, assuming tax bands stay broadly the same and the lower rate of 2% on amounts over £50,270 isn’t increased,” Mr Jenner said.
“[Some people] will regard this as too much or feel it should be funded some other way. But others will think that is a reasonable sacrifice in order to help the NHS.”
Boss at Jenner & Co, the accountant spoke of growing “acceptance” by the public that social care is underfunded, and could do with £10billion – the amount a 1% NICs hike would raise.
Likely to be less acceptable to people, however, is that Mr Johnson used the Conservative’s 2019 manifesto to “guarantee” that the party would not raise National Insurance.
But the PM, who also pledged in the Tory manifesto to find a “long-term solution” to social care, might be able to avoid taking too much flak.
“Breaking the manifesto pledge of not raising NI is perhaps more acceptable than an [outright] tax increase,” Mr Jenner says, explaining: “Psychologically, people see NI as being used to fund the NHS. And of course nobody likes to pay more, for anything, than they were before, but sometimes we just have to. Social security costs in the UK are well below the average for European countries - and will be even after a 1p increase.”
'Rates are high enough'
Former Cabinet minister Sir John Redwood is among the unhappy Conservative backbenchers -- the very MPs who the prime minister will rely on to vote for his plan, which will have the effect of putting up tax bills of workers across the country.
“The government should say our tax rates are high enough,” Sir John tweeted.
“We would raise more tax if some rates were cut. Better social care is a priority we can afford without singling it out to require a tax rise.”
7th September 2021