SMES are biggest losers in budget 2017
Wednesday’s budget caused a stir for the self employed with increases in National Insurance contributions.
Philip Hammond sparked a political debate with a tax grab on self-employed workers, which breached a Conservative manifesto pledge not to raise national insurance rates.
Currently, self employed may have to pay Class 4 and Class 2 NICs:
• Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
• Class 2 NICs are paid on profits of £5,965 or more (To be abolished in 2018)
Enterprise Nation explains: From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018, and to 11% in April 2019. Taken together, a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This will leave 2.84 million self employed facing increases of an average of £240 a year. If you are self employed and earning 25k, for example, around £20 extra NI. In the second year it will be £168 extra in tax.
In his Budget speech, Phillip Hammond said this increase will raise 145 million pounds a year by 2021. “We have made a decision here to make the National Insurance system a little bit fairer.” Philip Hammond. In other words, ‘to narrow the gap between the self employed and employees’. The debate is, that being self employed you do not get sick pay, paid holidays, a workplace pension, or job security.
It’s not necessarily the rise that is the issue, (many self employed are happy to pay national insurances and taxes to support the economy) it’s the principle (the original Conservative manifesto committed to no increase in National Insurance, in VAT or income tax) and the worry of what is to come. There is a lot of support out there for new businesses, but funding is tight and national insurance rises are not going to help. Future of self employment is looking bleak, and it could stop people taking the leap into self employment, when new businesses offer so much to the economy. Small businesses are the backbone of the UK economy, driving growth and innovation. They create £100bn a year for the economy. They also employ around 60% of uk. They should be encouraged to flourish. It should be encouraged and feasible for people go self employed, but the recent budget announcements point towards making it more difficult.
There is also worry that it is unfair, and disproportionate to large corporations: “Six out of Britains ten biggest firms pay zero corporation tax despite ringing profits of 30 billion.” John Macdonell, MP, goes on to use Uber as an example: “The budget makes uber drives pay more tax, at same time cutting taxes of uber itself.” The budget caused a stir because people feel big corporations are getting away again and people at the bottom are being made to pay (the conservatives have also put a freeze on welfare). Being self employed is already high risk (and long hours – average 70 a week) and the worry is we will get to a point where there is no tax break left at all to compensate for the lack of paid holiday, sick pay, pension contributions and minimum wage guarantees.
Budget 2017: How will it affect you?
Details on the full budget here.