Self-employed workers were dealt another blow after Chancellor Philip Hammond ditched plans to abolish Class 2 National Insurance in his announcement on 6th September 2018.
In a move that is set to cost up to 4.8 million self-employed workers £134 each per year, the government has decided to renege on a pledge to abolish Class 2 National Insurance Contributions.
The original plans were announced by George Osborne in his 2015 Budget and were meant to be introduced this year. Mr Hammond had previously delayed them until at least 2019, but has now announced that they’ll be scrapped.
How will the self-employed be affected?
Class 2 National Insurance is currently set at £2.95 a week and is paid by self-employed workers with sole trader profits above the Small Profit Threshold (£6,205 in 2018/19 tax year). There is no further information on whether these thresholds or rates will change, only that Class 2 National Insurance will now continue. We can expect further details in the budget due in November 2018.
Our article “Self-employed National Insurance explained” has further information on the current rules and what you need to pay.
Darren Fell, CEO and Founder of Crunch, comments:
It’s disappointing to see Chancellor Philip Hammond perform a U-turn on plans to cancel Class 2 National Insurance Contributions. With the number of self-employed people at an all-time high and still rising, the UK government need to be providing a clear strategy to help them succeed, rather than adding to the confusion.
Scrapping Class 2 National Insurance Contributions would have gone some way to simplifying the taxation system as well as reducing contributions. The government has repeatedly backtracked on announcements to modernise the system and have once again reneged on its promise to help small business owners and the self-employed.
Many self-employed workers run very small limited companies and are also bracing themselves for a potential drop in income due to the proposed changes in IR35 legislation. On top of the April 2018 60% cut to the tax-free dividend allowance, which is now just £2,000, there is little evidence of policymakers supporting the vitally important self-employed sector of our economy.
If you’d like to learn more about IR35 or find out how Crunch can support you, check out our IR35 hub. From here, you’ll be able to access all of our Knowledge articles on the subject, download our jargon-free business guide and learn more about our IR35 service.
Confused about small business taxes?
To help you get a better idea what you’re expected to pay as a freelancer, contractor, or small business owner, we’ve written a quickfire explanation of the main small business taxes.