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 proceed.
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 sector
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.
We will be monitoring the changes and proving further updates, but if you would like further information or advice on these matters, please contact James Simpson or Jasmin Dhillon on 01494 478 671 or firstname.lastname@example.org & email@example.com