The news that Philip Hammond has decided to scrap a tax break for 3.4 million self-employed people has been branded a “stealth tax” by some in the media. The U-turn on the government’s promise to abolish Class 2 National Insurance Contributions (NICs) is thought to have been made in order to raise an extra £435 million a year for the NHS.
“This is very disappointing and another blow for self-employed people on low incomes who can least afford it,” said Julia Kermode, chief executive of The Freelancer & Contractor Services Association. "It is disingenuous of Mr Hammond to say the least and once again he is penalising hard-working self-employed workers who are the backbone of the UK economy. The government is justifying its move through concern for those self-employed people who voluntarily pay Class 2 NICs to gain access to a state pension. However the move reiterates that the UK tax and NICs system is complex, clunky and outdated. Making changes to one part of the system inevitably has unintended consequences on another part of the system.
Dave Chaplin, CEO and founder of contracting authority ContractorCalculator notes the reason given by the government for the change – that it introduces an unintended consequence that it cannot resolve without introducing more complexity into the tax system – holds little water given their track record: “[HMRC] have damaged the self-employed workforce in the public sector with the off-payroll tax which has had significant unintended consequences and introduced massive tax complexity,” he says, "Yet they are planning to roll the same ill-thought out tax to the private sector.”
“We have seen this happen time and time again in the numerous tax policy changes that we have seen affecting self-employed people in recent years,” adds Kermode, “and until a government commits to taking a holistic approach rather than knee-jerk reactions to act as sticking plasters on a broken system, this will continue to happen. The Government says it has listened to some stakeholders in this instance, perhaps it will also now listen to the huge number of stakeholders expressing their many concerns about the possible IR35 changes it is planning on imposing on the private sector.”