National Insurance changes: a kick to the self-employed?

Being self-employed is about to get even more testing
“This will make it hard to continue. I can try to sell more bread, but there’s a limit to the amount of bread one baker can produce” Bill King, baker
  • | by Rachel England

Since this article was published, the chancellor Phillip Hammond has performed a sensational u-turn on these proposals.

Was it a result of it being in contravention of the Conservative party's last election manifesto? Perhaps. But we like to think it was a result of reading this impassioned takedown...

I’ve been self-employed for seven years. There’s a lot to love about working for yourself.

I don’t need anyone’s permission to go to a dental appointment, I don’t have anyone micromanaging my every move, nor do I have to tolerate inane office ‘banter’.

And if work is slow it’s no big deal to take to the sofa with a packet of Hobnobs and Netflix for an entire afternoon.

But as glorious as this lifestyle can be, it has serious downsides, too.

Social isolation and the relentless ‘feast or famine’ worries aside, I get none of the benefits my traditionally employed pals do.

I’m not talking about fancy gym memberships or Friday beers, but really basic stuff like paid holiday and sick days.

In theory, this is the pay-off for being king of my own castle, but it’s not felt like much of a fair deal this week, as I’ve contorted myself into various unnatural positions to continue working despite having spinal surgery last weekend.

So my woes were only exacerbated with the release of this year’s budget, which, while much of a non-event in general, has hit the UK’s five million self-employed hard by the proposed changes to National Insurance.

Calculations by wealth manager Hargreaves Lansdown suggest a self-employed worker earning £30,000 a year will pay £282 more national insurance in 2019 than in 2016 as a result.

These changes, as well as the alterations to tax-free dividends for those operating as a limited company, have been made in a bid to bridge the tax gap between the self-employed and traditionally-employed.

But while it might make those stuck in offices on a sunny Friday afternoon feel a little better, it has huge implications for the working community which has helped boost UK employment during the economic turbulence of the past few years.

Bill King is a self-employed artisanal baker from Cwmbran who was given access to his pension after he was made redundant from his previous job.

His pension is taxed, but not subject to National Insurance.

However, because National Insurance is collected through tax the new rate will be applied to his total income. “My business only makes a small profit, but because of my pension the new rate of 10% will mean an extra £1,500 charge for me.

“This will make it hard to continue. I can try to sell more bread, but there’s a limit to the amount of bread one baker can produce!”

Joe Ebsworth is a plumber from Reading who echoes Bill’s sentiment.

“I’ve not crunched the numbers yet but it looks like I’ll be down a good few hundred pounds,” he says.

“The only way I could make up the shortfall is to work more hours, but I’m already on an average 55-hour week. I feel like self-employed people are helping to prop up the economy and we’re just getting kicked in the face for it.”

Meanwhile, Cardiff-based James Dix, who runs his own computer hardware consultancy business, estimates he could be out by as much as £2,500.

He operates through an intermediate company and says the shortfall is “frustrating” and he - like many other IT consultants - will have no option but to increase their rates to account for it.

No doubt, this move will have serious consequences for the self-employed community overall.

As Yorkshire-based freelance media trainer Hazel Davies notes: “How on earth is this encouraging people to start businesses? I thought enterprise was the key to economic growth, yet this is just going to make it harder for people to make the leap. I do think it might make people less likely to expand or strike out on their own, which is ludicrous.”

She adds: “I'm not against paying tax and I think everyone should pay tax in accordance with what they've earned, but it looks like the measures are hitting the smaller guys when they should be there to make it harder for larger companies to avoid paying their dues.”

And I agree.

I’m happy to pay more tax if it means I get to enjoy the same benefits as everyone else, but as I shift painfully in my seat and add to my growing to-do list when all I want, nay need, to do is lie down and recover, it’s clear that’s not going to happen.

This completely unfair tax hike is a kick in the teeth to those already at a disadvantage.

If you run a small business and are looking to cut your costs, then see what you could save on broadband, insurance and energy with Gocompare.com

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