As the Chancellor claimed to want to grow “a stronger, fairer and more global Britain” the Freelancer & Contractor Services Association has questioned what is fair about targeting the very people who have been responsible for the UK’s economic recovery to date. The Chancellor should remember that micro-businesses and self-employment account for around 50% of the increased workforce between 2015 and 2016, underpinning the highest employment figures for over a decade.
Reviewing the specific details:
- FCSA questions whether there is any need for the differences in NICs for the self-employed to be reviewed, because evidence from the recent OBR and Fiscal Outlook does not support this. Their data shows that NI accounted for 17.5% of overall tax revenue in 2010-2011 and is expected to be the same in 2016-2017. If the increase in self-employment since 2010-11 had negatively impacted on NI receipts we would expect to see the proportion decrease, however there has been no change, and indeed NICs are expected to remain at the same proportion for 2021-22.
- Other rudimentary analysis on the increase in self-employment by 838,000 between 2006 and 2016 suggests that the Exchequer potentially lost £320m in employers NI, with the fairly unrealistic assumption that all of these jobs could have been employed roles. The loss in tax revenue amounts to just 0.25% of National Insurance receipts or 0.04% of forecast current tax receipts in 2016-17. Surely this demonstrates that the growth in self-employment has not been a threat to the tax base to date.
- Decreasing dividend allowance from £5k to £2k from 2018 serves to target professional freelancers who work through their limited company, and is yet another measure that penalises the very entrepreneurs and flexible workforce upon whom the UK economy depends.
- The Chancellor stated that tax should not be the main driver for the mechanism in which people choose to work but he clearly believes it is. However, evidence suggests otherwise. BIS research “Understanding Self-Employment 2016” found that only 1% of over 2,500 respondents cited tax as the main reason for choosing self-employment.
Commenting on today’s punishing Budget, Julia Kermode, CEO of FCSA said: “The Chancellor wants to grow a fairer economy but there is nothing fair about today’s announcements. Once again, micro-businesses and the self-employed are coming under attack for not paying enough tax with Mr Hammond believing that employees are being penalised by an unfair system. This is wholly unjustifiable and today’s measures are targeting the wrong people. We have seen a raft of tax policy changes penalising self-employed professionals over the last few years leaving them financially worse off and under-valued by a Government that purports to recognise the important role they have played in the country’s economic recovery to date. It would have been sensible for the Chancellor to await the full outcome of Matthew Taylor’s review that is due out in the summer before he announced today’s kneejerk moves that will see policy changes that will have serious negative implications.”