Freelancers' Budget tax break may be lost

A new contributory benefits test announced at Budget 2015 is unsettling the supporters of freelancers, amid fears it may be the basis to cancel out the £143-a-year tax break that the self-employed were given by the chancellor.

In fact, since the Budget last month, at least three experts have warned that the abolishment of Class 2 NICs may, in revenue terms, be cancelled out by the new test related to Class 4 NICs.

Firstly, accountant Nimesh Shah, a partner at Blick Rothenberg, told the Financial Times after George Osborne’s speech that the test for Class 4 contributions “could be a method of recovering the tax giveaway.”

Also wondering after the Budget about what seems to be a giveaway, as the chancellor outright scrapped what is a weekly charge on profits over £5,585, was personal finance expert Ros Altman.

Following Mr Osborne’s announcements, she told the Daily Mail: “It is possible the government could offset the tax break by asking [the self-employed] to contribute more towards the flat-rate state pension.”

A similarly ominous assessment has since been compiled by the Money Advice Trust. Reflecting a day after both the new test and the end of Class 2 NICs were promised, was the trust’s Joanna Elson.

“The scrapping of Class 2 NICs will provide welcome relief for the self-employed, at least in the short term,” she said. “What this means for their level of pension and welfare entitlement in the long-term, however, needs to be examined.”

That examination can only take place “later in 2015” – the timeframe the government gave in the Budget for when it will “consult on the detail” of axing Class 2 NICs and ‘reforming’ Class 4 NICs via the test.

At present however, Jordan Marshall, policy adviser at the Association of Independent Professionals and the Self-Employed, isn’t optimistic. Writing a week after Budget 2015, he explained why:

“George Osborne will also surely find it tricky to meet the commitment in the Budget to running a surplus by 2018. Cuts to income tax have been pencilled in, as well as the abolition of Class 2 NICs. This really only leaves other increases to National Insurance Contributions as an area Osborne could explore to boost the public coffers.”