March 17th, 2017
The Budget always causes much discussion and debate, and last week’s statement from the Chancellor Philip Hammond was no exception.
He had barely sat down before MPs, including many in his own party, were criticising his plans to increase National Insurance for self-employed people.
Indeed, exactly a week later, and the Chancellor was making an embarrassing U-turn, cancelling the planned increase because it broke the Tory’s manifesto promise of no tax increases.
The whole debacle reveals that the government has self-employed people and contractors in its sights. Although there will be no rise in National Insurance contributions – NICs – during this Parliament, if the Conservatives win the next election it’s a safe bet they will be back on the agenda.
And if there is a rise in NICs in the future, what will this mean for contractors? And in particular for the fastest growing group of contractors – women and younger contractors.
IPSE (The Association of Independent Professionals and the Self Employed) is the biggest organisation representing the UK’s 4.8m self-employed and professional freelancers and contractors, and it was immediately critical of the Chancellor’s measures. It has since welcomed the U-turn.
According to IPSE’s figures, between 2008 and 2016 the number of female freelancers increased by 55% compared to a 3% growth in males. In the same time period the number of mothers working as freelancers increased by 79% to a total of 302,000 – 15% of the total freelance population.
This substantial increase is almost double the rate of increase across the freelance workforce as a whole.
And here’s the issue: any increase in NICs, such as the Chancellor proposed, affects only contractors who earn above the NI threshold and who operate on a sole trader basis (limited company and umbrella contractors pay NI under PAYE). This tends to be young independent professionals and women returning to work who choose to operate as sole traders for ease and simplicity.
Another Budget measure, announced by the Chancellor and one which will go ahead, concerns dividends: from April 2018, the total amount of dividends that company directors and shareholders can receive tax-free will fall from £5,000 to £2,000.
This reduction in dividend allowance will be hardest felt by those who draw only a small dividend, roughly between £10k and £20k – again, young independents and women are likely to be more affected. Those drawing larger dividends from their companies will notice a proportionally smaller increase in their tax bill.
And although the Chancellor said the measure was mainly designed to reduce incentives for workers to incorporate themselves as companies for tax reasons, it will also impact on savers with investments in stocks and shares worth more than £50,000 outside ISAs.
We can be thankful that the main attack on contractors and the self-employed – particularly women, who are returning to work, and young contractors just getting started – was overturned, but we fear it may be a stay of execution not a complete reversal.
We’d concur with Chris Bryce, IPSE Chief Executive, who commented: “It’s entirely right for the Chancellor to look at taxation of the self-employed, but changes should only come after a thorough consultation with the business community, which has not taken place. Tax for the self-employed is an incredibly complex issue and any policy needs to be carefully considered.”
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