Chancellor signals tax hike once Covid-19 is over
Thursday, 02 April 2020
Last week, Rishi Sunak announced that self-employed people in the UK will be able to claim support worth 80% of their average monthly profits, in an “unprecedented” move to cover the impact of Covid-19.
The bailout is broadly the same as that offered to employed workers and led to the Chancellor saying:
“It is now much harder to justify the inconsistent contributions between people of different employment statuses.
“If we all want to benefit equally from state support, we must all pay in equally in future.”
So, what does this mean?
In the press conference that followed, Mr Sunak was quick to deny any imminent changes, although his comment heavily suggests that a tax hike is coming for self-employed individuals. My own inclination would be that national insurance contributions (NIC) will be the focal point.
Here is an example to illustrate why NIC might be targeted.
In 2018/19, a self-employed individual with profits of £50,000 would have paid class 4 national insurance of £3,486. They would also be subject to class 2 national insurance of £153. This gives a total amount collected by the Government of £3,639.
An employee on a salary of £50,000 would have paid class 1 national insurance of £4,628. The employer would also have paid class 1 national insurance of £5,737. This gives a total amount collected by the Government of £10,365.
Mr Sunak refused to go into any more detail, and said,
“It’s just an observation that there’s currently an inconsistency in contributions between self-employed and employed.”
Given the sheer cost of the bailout measures introduced in this last week alone, you would expect the Government to be looking to recoup this expense from somewhere.
As the Government is trying to reduce borrowing, then attempting to collect more tax seems a plausible way to cover these additional costs.
The previous Chancellor did attempt to increase Class 4 NICs, the main rate paid by self-employed people, to narrow the gap with contributions paid by employees. He quickly did a U-turn on this after facing severe backlash.
Will Mr Sunak attempt the same thing? – It certainly looks that way and, as always, we’ll keep you up to date as and when announcements are made.
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