Chancellor performs dramatic nics tax u-turn

Class 2 NICs U-turn will fuel further distrust in Government tax strategy

The Government’s treatment of millions of self-employed individuals and small business owners will likely face yet more scrutiny following the Chancellor’s recent U-turn on plans to scrap Class 2 National Insurance Contributions (NICs).

Paid by sole-traders earning profits of £6,025 or more per year, Class 2 NICs were originally due to be removed in April 2018 - twelve months later than first planned - and would have saved 3 million self-employed individuals around £150 annually. But the Government shelved these plans once more before backtracking on its decision to scrap the tax altogether just a few weeks ago.

You might remember, this isn’t the first time the Chancellor has performed a dramatic tax U-turn. Last year, less than a week after his first Budget, Philip Hammond reversed his controversial decision to increase Class 4 National Insurance Contributions.

While this was a move widely welcomed by the self-employed, it did nothing to suggest that this Government is clear in its thinking towards the independent workforce. It also raised serious questions about how well mapped out the Conservative’s tax strategy is - if at all. There’s no doubt the Chancellor’s most recent one-eighty will have a similar effect.

Despite Class 2 NICs not applying to individuals working through their own limited company, this will no doubt be viewed by freelancers and contractors as yet another sign that the Government cannot be trusted on tax, and more specifically, is capable of anything when it comes to ever-unpopular and damaging IR35 reform.

With the Autumn Budget fast-approaching, the Government’s apparent confusion over its own tax roadmap does not bode well. Contractors, recruitment agencies and millions of private sector businesses need clarity over the future of the IR35 legislation. As things stand, the Government does not seem to be listening to the overwhelming evidence that further changes are not needed.

Moreover, UK business in its entirety needs to know the Government will stick to its word if it decides against introducing IR35 reform to the private sector in April 2019. Already as it is, there would be very little time for 5.7 million private sector organisations to prepare for potential changes if they are enforced next year. And with U-turns and inconsistency in the air, should the Government rule out IR35 reform only to then change its mind again - chaos could well ensue in the private sector.

Soon after the arrival of public sector IR35 changes in 2017, 97% of contractors told Qdos Contractor they did not believe the Government had the best interests of the self-employed at heart. A year or so later and The Treasury has done little to win back the support of contractors or the entire 4.8 million self-employed population for that matter.

Contractors show in survey after survey they feel they bear the brunt of the Government’s broken promises and questionable tax strategy, and regard themselves as a soft target for HMRC. This is in stark contrast with large companies, that continue to enjoy a more liberal tax regime.

The Government seems intent on making life more difficult financially for all self-employed workers - irrespective of whether they work as sole traders or as contractors through personal service companies. And all the while, it proclaims it understands these individuals and wants to create a tax environment that is supportive of those brave enough to strike out alone and risk more for greater reward.

There is a credibility problem to say the very least: can independent workers and small business owners trust what the Government says and does anymore? After a number of empty pledges and most recently, another tax U-turn, it’s difficult to see how they can.