3 million self-employed workers were due to receive a tax cut for National Insurance; however, these plans by George Osborne have now been scrapped by Chancellor Philip Hammond.
On Thursday, the Treasury revealed it will no longer abolish Class 2 National Insurance Contributions (NICs).
The plans had originally been announced in 2015 with the estimate that 3.4 million people would benefit from an average tax cut of £134.
Anyone who earns profits of £6,205 or more per year pay class 2 NICs. They now cost approximately £150 per year at the current weekly rate of £2.95.
It was estimated by the Treasury that the tax cut would cost the exchequer around £360m per year. This abolishment comes at a time when Hammond is considering how to fund a government pledge with the aim of setting aside an extra £20 billion per year by 2023 for the NHS.
The abolishment was delayed by Hammond in November 2012 for 12 months when it was supposed to come into practice in April 2018. The Treasury has said the delay should “ensure that there are no unintended consequences for the lowest paid.”
Since then, Treasury minister has announced the complete scrapping of this tax cut. Robert Jenrick said they have concerns regarding the self-employed workers’ pensions.
He stated, “a significant number of self-employed individuals on the lowest profits have seen the voluntary payment they make to maintain access to the state pension rise substantially.” To check what tax returns and payments you need to make, then we will be happy to offer advice.
Jenrick has also said that they came to this decision after listening to those who were likely to be affected by the change as it could have impacted them negatively. However, he notes that “the government remains committed to simplifying the tax system for the self-employed, and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances.”
However, some people have condemned the choice to scrap these tax cuts such as Labour’s shadow chancellor John McDonnell who said it was “yet another betrayal of the self-employed.”
This opinion has been reinforced by the national chairman of the Federation of Small Businesses, Mike Cherry, who said: “The self-employed community has been let down today, missing out on a promise to reduce their tax burden.”
If you are unsure of what taxes you need to pay as a self-employed worker or as a small business, then please don’t hesitate to contact us on 01908 760293.