Government shelves £130 freelancers’ tax cut
The government has quietly delayed the abolition of Class 2 National Insurance Contributions for the self-employed, saying it won’t be axed for sole traders until 2019.
Disappointing freelancing group IPSE, the Treasury’s Andrew James said the year’s deferral was something the government has “decided,” in light of “unintended consequences.”
His explanation refers to concerns that, due to the abolition, sole traders with low profits would face a higher NIC bill, overall, in order to keep their entitlement to the state pension.
In fact, such self-employed people would end up having to pay five times as much under Class 3 NICs -- currently more than £14 a week, compared with just £2.85 under Class 2.
But these concerns date back to when Class 2’s abolition was first announced under George Osborne, the previous chancellor, to much fanfare in his Budget more than two years ago.
“Given that the announcement to scrap Class 2 NICs was made…[back then], we would think the government would have had time to sort out any issues and meet its own deadline,” IPSE said.
“Taxation is a nightmare for people who work for themselves. It’s too complicated and this measure was intended to make things a bit simpler for millions of people.”
In theory, it should also make running their one-person empire cheaper for freelancers, at least according to how it was presented by Mr Osborne in his 2016 Budget.
The then-chancellor trumpeted to the public that he could make available “a tax cut of over £130 for each of Britain’s 3 million strong army of” self-employed people.
But such single-person ventures baffle the government, according to IPSE director of policy Simon McVicker. “The government doesn’t seem to know what to do with the self-employed.
“In March they tried to raise Class 4 NICs before back tracking, they introduced a dividend tax and then changed it as soon as they could, and now they can’t deliver on a significant commitment.”
He added that the ultimate solution would be for ministers to announce a “complete review of the tax system for the self-employed” because currently, “they clearly don’t have a handle on it.”
However, Mr James only said: “The government has committed to abolishing Class 2 NICs to simplify the system, so it is therefore right to take the time to ensure that there are no unintended consequences for the lowest paid.”
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