The 2017 Budget announcement was heavily criticised for the tax
hike on 'entrepreneurial', self-employed workers, who make
up 15% of the workforce. The Government has now reversed plans to
increase National Insurance Contributions (NICs) but there may be
more to come.
National Insurance Contributions
The big story of the 2017 Budget was very much the hike in NICs
for self-employed workers from 9% to 11%. This has now been
shelved, but the Chancellor has made it clear that the Treasury is
concerned over the steady growth in self-employment undermining the
tax base. The self-employed and those using contractors should
beware as the direction of travel is for tax rates to be increased
and for a further narrowing of the band for
"self-employed" status. The Treasury now has £2
billion to find by 2022 to balance the books in the U-Turn –
measures to do so will be announced in the autumn budget. Employer
NICs may well come under scrutiny. Plans to reduce the tax-free
dividend allowance from £5000 to £2000 will
The whole area of employment status has been under review for
some time and the Government has asked Matthew Taylor, the Chief
Executive of the Royal Society of Arts, to produce an independent
review. The deadline for submission of evidence is 17 May 2017.
Self-employed 'workers' of the gig economy
The review will be interested in recent cases considering the
status of workers in the "gig economy". The recent Court
of Appeal ruling in the leading Uber case, in which drivers were
declared 'workers' and thus covered by various statutory
employment protections, including the right to holiday pay and
national minimum wage (NMW), will have an impact on businesses that
make use of more flexible employment models.
IR35 Intermediaries legislation: self-employed in the public
There is also likely to be a tightening of the IR35 legislation.
It was originally introduced to combat tax avoidance of
'fake' self-employment in companies set up specifically for
individuals to supply their own services. We already have the
intermediaries legislation which places reporting and tax
liabilities on the end supplier in a chain. From April 2017, on
receipt of the services, public sector organisations must consider
whether the individual would be deemed an employee if they had been
contracted directly to the end user. If so, the public sector
client is liable for the PAYE – and must subtract tax and
National Insurance at source rather than allow the worker to
calculate their own contributions. This does not entitle the
contractor to full employment benefits such as sick pay and holiday
entitlement. This could significantly impact on a range of current
arrangements including for NHS agency workers.
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