Vow not to raise self-employed NICs divides business groups

The government’s move to rule out revisiting the increase to self-employed National Insurance Contributions has been welcomed -- albeit not across the board.

The Federation of Small Businesses said it marked a “watershed moment” for the self-employed, as they now know -- definitively -- that their Class 4 payments will not be rising.

“This [commitment by the government] now needs to be followed-up with delivery of the promise to abolish Class 2 NICs for the self-employed,” the federation said. 

“We look forward to working with the government to ensure that the genuinely self-employed receive the protections and rights they’re due.

“That includes tackling challenges the self-employed face when applying for mortgages and insurance products.”

Mike Cherry, FSB chairman, said it was “disappointing” that such challenges facing freelance workers received no mention in the government’s response to the Taylor Review.

But the disappointment for at least three separate groups, all of which normally support smaller traders like freelancers, is the official promise to not hike their Class 4 payments.

“The lack of action on tax reform [around self-employment] is a wasted opportunity,” said the Institute of Directors, which supported chancellor Philip Hammond’s plan in March 2017.

“The different tax treatment of the employed and self-employed has been a driving force behind the rise in self-employment in recent years, but tax treatment should not determine a person’s choice of employment status.

“With the Office for Budget Responsibility estimating that the growth in self-employment will cost the Exchequer £3.5bn by 2020, the government should have shown the courage to tackle this issue head on.”

The Chartered Institute of Taxation, whose members provide accounting services to small businesses, agrees that the government appears to have – wrongly, taken the easier path.  

“By ruling out changes to the rates of National Insurance Contributions in relation to employment and self-employment , the government are denying themselves many of the tools they need”.

The institute’s John Cullinane added: “The imbalance between the tax burdens on employment and self-employment remains unsustainably large. No solution will be painless or immediately popular.

“This does not mean the problem can be ignored. It means there is a need for full public debate in which the problem can be clearly explained and we can, as a society, identify the most promising options and build support among the public.”

Ann Fairpro, chair of another tax charity – The Low Incomes Tax Reforms Group also thinks the government was incorrect to turn down a potential opportunity to eradicate ‘false self-employment.’ 

“Taking action against engagers of low-paid workers who use exploitative practises and clarifying what workers should be entitled to expect is good; better still would be to remove the incentives for such exploitation,” she said.

“For that reason, it is unfortunate that the government has decided that changes to the tax and NICs regime is out of scope, whether for employees or the self-employed, when it often seems to be the desire to save tax, and employers’ NICs, that leads to false categorisation of workers and much of the labour market abuses that the Taylor Review attempted to deal with.”

However the FSB countered: “Of course we need to stamp out false self-employment. But what we definitely can’t have is the genuinely self-employed disadvantaged in the process.

“The government’s focus on good work is the right one. Smaller businesses employ 60 per cent of the private sector workforce, providing the close-knit, supportive environments that can’t always be found in big corporations.”

Mr Cherry appealed: “With the unveiling of a raft of new rules, the government needs to remember that legislation is not always the answer. Incentives and nudges are often the best route to improving modern working practices.”