National Insurance changes could hit self-employed ‘to get more money in for Government’

National Insurance: How are your contributions used?

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Rishi Sunak will deliver his Budget statement in the House of Commons on March 3. There’s been plenty of speculation about what could be announced, as the Chancellor is expected to give an update on how the more than £300billion cost of the coronavirus support measures will be covered.

“The Chancellor Rishi Sunak faces a difficult dilemma at the beginning of March for his Budget,” Kevin Sefton from personal tax app untied, the UK, said.

“On the one hand he has a bill of at least £300bn from Coronavirus support measures to pay for, on the other he doesn’t want to break the Conservatives’ 2019 election manifesto promise not to increase income tax, national insurance or VAT rates.”

With days to go, Mr Sefton has set out what he thinks will be tackled in this year’s Budget.

“Despite the fragile state of our economy, and the fact that we are unlikely to see significant tax increases, we do believe there are key focus areas where there may well be movement,” he continued.

“These will be centred around the COVID-19 response, general rate driven decisions (main areas of change are likely to be around corporation and capital gains tax), tax system changes and ‘hidden’ taxes.”

According to Mr Sefton, it may be changes to rules regarding National Insurance contributions for some Britons are ahead.

“One thing that non-PAYE workers need to watch out for is a potential increase on national insurance contributions for the self-employed and possible new measures aimed at company directors,” he said.

“When he introduced the self-employed income support scheme, back in March 2020, the Chancellor said, ‘It is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.’

“This potentially signals a desire to do something about the perceived disparity between national insurance rates, or dividend tax rates, between the self-employed, company directors and those who are employed under PAYE.

“The Chancellor might use this budget as an opportunity to attempt to address this, perhaps at the same time as extending SEISS support to some of those groups who have previously been excluded.”

The company has predicted a variety of changes which could be announced at Budget.

On National Insurance in particular, untied said: “There could be a possible increase on National Insurance contributions (NIC) for the self-employed and freelancers.

“Currently employees pay a top rate of 12 percent NIC, whereas the self-employed top rate is nine percent.

“Although the Conservatives’ 2019 election manifesto promised no increases in rates of NIC, perhaps the Chancellor can find a creative way of tinkering with NIC for the self-employed to get more money in for the government, without technically breaking this promise.

“For example, an alignment of rates between the self-employed and employees, which doesn’t go above the existing 12 percent top rate, and perhaps even reduces this to say 11 percent for all, could probably be spun as not being an overall increase in National Insurance.

“There could also be an opportunity for simplification by aligning the income tax and NIC payment thresholds.”

There’s also been suggestion that there could be changes ahead when it comes to the High Income Child Benefit tax charge.

“The High Income Child Benefit Charge (HICBC) applies to anyone with an income over £50,000 who gets Child Benefit, or if their partner gets Child Benefit,” untied explained.

“This threshold was introduced in January 2013 and has never been increased.

“In 2013 average UK earnings were around £27,000, but these are now around £31,500.

“This threshold is therefore long over-due an increase and hopefully the Chancellor will look at this in this budget.

“Currently a household with combined income of just under £100,000 could still qualify for Child Benefit with no restrictions, whereas a household with only one worker earning over £50,000 incurs a charge.

“This is clearly not fair, especially when many households now have someone out of work because of COVID-19.”

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