Tax Cut for Self Employed Workers Scrapped
A planned tax cut for 2.7m self-employed workers has been scrapped by the UK government. It was originally due to scrap Class 2 National Insurance contributions in April but the move had been delayed by a year and has now been shelved. It cited concerns that low-earning self-employed people would pay more to access the state pension, and it would make the tax system more complex.
Labour’s John McDonnell called it a “betrayal of the self-employed”.
The government was originally due to scrap Class 2 NI contributions, paid by self-employed people with profits of £6,205 or more a year, in April 2018 but last year announced it was delaying that for a year.
But it announced on Thursday that they would not now be abolished in this Parliament. The move was set to save millions of workers about £150 a year.
But there had been concerns that the move would hit more than 300,000 self-employed people earning less than £6,000 a year who were paying the Class 2 NICs voluntarily, in order to access the state pension. They would have faced being moved to Class 3 contributions, raising weekly payments from £2.95 to £14.65.
In a written statement, Treasury Minister Robert Jenrick said the change had been intended to simplify the tax system for the self-employed but it had “become clear” that a “significant number” of self-employed people with the lowest profits would have ended up paying more.
“Having listened to those likely to be affected by this change, we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society,” it said.
Trying to address the concerns would have meant “greater complexity to the tax system, undermining the original objective of the policy”. He added: “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.”
But shadow chancellor Mr McDonnell said: “This is yet another betrayal of the self-employed. These people are the engine of the economy and have been let down again, while giant corporations have seen their tax bills slashed.”
The Federation of Small Businesses said it would hit more than three million people and would “net the Treasury more than £350m annually in the three years to 2021”.
FSB Chairman Mike Cherry said the Treasury “should have worked harder” to find ways to protect low-earners.
“The self-employed community has been let down today, missing out on a promise to reduce their tax burden. This raises serious questions once again about the government’s commitment to supporting the self-employed. ” He added: “Class 2 NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up.”