LONDON — Chancellor Philip Hammond delivered his first budget since taking office on Wednesday, and despite a low-key speech, announced some major changes to the way taxes are levied on self-employed people in the United Kingdom.
Self-employed people account for 15% of the total UK workforce.
Hammond announced a hike in the amount of national insurance Britain’s self-employed must pay, aiming to raise an extra £145 million for the Treasury by 2021-2022 in doing so.
The chancellor said the announcement was helping to create what he called a more “fair and sustainable” tax system for the UK.
Despite arguing the measures will make taxation fairer, the measures mark a serious hit to the self-employed workers, who will now see national insurance (NI) contributions increases from 9% to 11% in the coming two years.
“The main rate of Class 4 National Insurance contributions will increase from 9% to 10% in April 2018 and to 11% in April 2019 to reduce the gap in rates paid by the self-employed and employees, and to reflect the introduction of the new State Pension to which the self-employed have the same access,” the government’s official budget documents say.
The national insurance changes will impact roughly 2.84 million people in the UK, who will on average be £240 per year worse off as a result, a Treasury source told Business Insider.
Those on the basic rate of tax will be £255 worse off, although that will fall to £205 once the government’s previously announced abolition of Class 2 national insurance — which currently covers people making profits of between £5,965 and £8,060 per annum — comes into force in 2018, the source added.
Understandably, the news has not been taken particularly well in the self-employed community, with Lawrence Jones, the UK CEO of B2B hosting company UKFast saying in an emailed comment:
“The move to reduce taxes for the self-employed is unquestionably a decision which reduces the incentive for risk takers. It’s these small entrepreneurs that drive the economy and often become the ones who build the SMEs and fast-growing startups we all want to see thriving.
“It’s grossly unfair to claim they’re levelling out the tax to balance with employees when employees get so many extra rights like sick pay, holiday, pensions and maternity pay. How much is that worth? I’d be thinking ‘why take the risk?”
Under the current tax regime self-employed workers pay significantly less national insurance than those classed as employees but do not receive as many protections and rights. The Institute for Fiscal Studies recently calculated that the self-employed enjoy a £1,240 tax advantage over employees, calling the current system “costly, inefficient, and unfair.”
In announcing the hike, Hammond also appeared to breaka key pledge from the Conservative party’s 2015 general election manifesto. The party’s 2015 manifesto promised that there would be “no increases in VAT, National Insurance contributions or Income Tax.” A spokesman for the Treasury denied that this is the case.