Freelancers had a brief period of rejoicing following the 2015 Budget as they eagerly anticipated the £143-a-year tax saving represented by the removal of the requirement to pay Class 2 National Insurance contributions. However, this is now fading in the wake of news that a new contributory benefits test is likely to be introduced which will apply to Class 4 NICs instead.
Many believed that the chancellor’s announcement was a sign that the coalition government were trying to support freelancers and independent professionals by reducing the costs of working for oneself, but this may be undermined by the revelations about the new test. Some experts believe that the new tests relating to Class 4 NICs could be an attempt to claw back some of the losses which will be made when the requirements for Class 2 NICs are abolished.
What was sold as a complete removal of what amounted to weekly charges for those with profits of more than £5,585 now appears to be a case of robbing Peter to pay Paul as it could be offset by the requirement for the self-employed to contribute more to the flat-rate state pension. Many financial commentators are interpreting the news in this way, with Joanna Elson of the Money Advice Trust concerned that the long-term effects of scrapping Class 2 NICs need to be examined thoroughly. She believes that, whilst the reduction in the amount that independent professionals payout may be welcome, the fact that this could have a significant impact on their pension and welfare entitlement.
The government gave a rather vague timeframe of ‘later in 2015’ for a more thorough examination of the implications of scrapping Class 2 NICs and reforming the Class 4 system using the new tests that have been proposed. However, Jordan Marshall, policy adviser for the Association of Independent Professionals and the Self-Employed, is not confident that this will work out in favour of the freelance population. He believes that the Chancellor’s stated goal of running a surplus by 2018 will not be possible unless some substantial changes are made, especially given that income tax cuts have been proposed as well. The only way left to boost the department’s income is to recoup the funds from the NIC system, could make any attempt to reduce the outgoings of the self-employed community a token gesture at best.
If you are considering self-employment and you want to calculate the rate of pay you are likely to generate, then our handy take home pay calculator could help you get an estimate of your wages as a contractor or independent professional. If you want some advice from experts, then our specialist accountants can answer any questions you might have and help you save as much money and time as possible when it comes to organising your finances. For more information on our services, call us on 01253 362062 or email us at firstname.lastname@example.org