The Chancellor has laid the groundwork for a tax increase for freelancers, while announcing a package of measures to help self-employed people through the Covid-19 crisis.
After unveiling a grant scheme that will cover 80pc of freelancers earnings up to £2,500 if they are struggling to pay the bills, Rishi Sunak hinted at a planned increase to National Insurance contributions for the self-employed, bringing rates in line with employees.
Speaking to the nation’s five million self-employed workers, he said it was becoming increasingly difficult to justify the inconsistent contributions of those who work for themselves compared with employees.
“If we all want to benefit from state support, we must all pay equally in future,” he said. The comment was understood to be a reference to the fact that self-employed people pay lower rates of National Insurance and experts have said the Chancellor is likely to be plotting a tax rise.
Philip Hammond attempted and failed to push through the same reforms during his time at Number 11.
Nimesh Shah of accountants Blick Rothernburg said: “Given that self-employed individuals have been granted an almost identical package of support to the employed worker, albeit with some restrictions, this could be the precursor opportunity for the Government to end the disparity in the two tax regimes, which it has been wanting to do for some time.”
Currently, a self-employed individual pays 3 percentage points less in National Insurance contributions on profits up to £50,000 compared to employees. Previous attempts to increase the tax fell apart following fierce criticism from the freelance sector.
Self-employed workers argue the lower rates of tax they pay are a justified trade off for the extra risks they take in working for themselves. Many require “war chests” of extra cash for periods when they are not working or when contracts fall through, as well as to cover the costs of periods when they are ill or on holiday.
Freelancers also do not benefit from auto-enrolment into company pension schemes unlike employees.
George Bull of RSM said: “The Chancellor makes it clear beyond doubt that he is now thinking of applying the same NIC regime to employees, the self-employed and other workers.
“We can expect to hear more about this in the Autumn Statement by which time HMRC will no doubt done a considerable amount of work to convert today’s warning into hard proposals. The relief enjoyed by self-employed people following today’s statement will be extremely welcome. However, it looks as though it will come at the price of higher future NIC contributions.”
Source: Telegraph UK