Wednesday, 15 March 2017

Self-employed underpaying by £5bn? Really?

What did the Chancellor mean when he said in his Budget speech that...

"The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5 billion this year alone"?

Some might have though he was implying that if only the self-employed paid what employed people pay then the Exchequer would be £5bn a year to the good.

But it's not quite like that.

Yes, Mr Hammond is simply totting up what he would get if all the self-employed were employed - and subtracting what he receives from them at the moment.

He reckons he would be £5.1bn a year better off.

Yet most of that large sum would come from the National Insurance paid by employers, the so-called tax on jobs.

Employer NICs are a substantial 13.8% of pay.

That's not money deducted from wage packets, even if employers see it as part of the cost of taking on staff.

The self-employed do contribute less, £2.80 a week and 9% of pay over £8,060, compared with the straight 12% contributed by employees.

But not £5bn less.

In fact some would argue that they are pushed into self-employment by companies who want to avoid having to pay employer NICs.

Even so, it was individuals whom the Chancellor targeted in his short-lived National Insurance hike, not companies trying to trim their tax bills.

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