NI tax hikes: Will umbrella contractors get the chop?
The UK’s Federation of Small Business (FSB) has called the Conservative government’s national insurance tax hike of 1.25% as “anti-small business” and could spark job losses of 50,000 or more. It will also lead to a 2.5% national insurance obligation on contractors employed by umbrella companies.
The FSB has expressed that its leadership was hugely disappointed to see a 1.25% rise in employer/employee National Insurance contributions and the dividend taxation be rushed through Parliament last week.
FSB National Chair Mike Cherry pointed out that: “This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead.”
FSB analysis estimates that the move could cause unemployment to rise by 50,000, as the increases kick in from April. Mike Cherry added: “Combined with other rising employment costs – and firms having to make tough decisions about the futures of those who have been supported by the job retention scheme – that 50,000 figure could easily end up being a good deal greater.”
The FSB estimate of 50,000 jobs at risk, which has been sent to the Treasury, is drawn from the Institute for Fiscal Studies’ calculations of NICs rates, an international assessment of comparable employment cost increases and the Office for National Statistics’ latest labour market study, the Financial Times has reported.
The Treasury, referring to the FSB estimate that 50,000 jobs could be lost, said it did “not recognise these figures”, adding: “It’s right that employers, who benefit from a healthy workforce, contribute to the levy so the costs are more widely shared.”
Despite the Treasury’s lack of faith in the ONS figures, constituent responses over the tax hikes are already preying on the minds of the Conservative Party MPs.
The Prime Minister’s Parliamentary Private Secretary Alex Burghart spent Friday morning last week Whatsapping Conservative MPs to gauge levels of outrage among their constituents, Politics Home reported.
According to the political news site, the MP for Brentwood and Ongar texted: “Morning – would be very interested to know roughly how many unhappy (a) social care (b) triple lock emails you’re getting, would you mind asking your office today?”
“This is the first time we’ve had our inboxes checked by Number 10 in around a year.”A party source (PoliticsHome)
How will limited company freelancers be impacted by NI hikes?
Andy Chamberlain, Director of Policy at IPSE, said: “After the financial damage of the pandemic, exclusion from support and the changes to IR35 taxation, this new tax hike on dividends will make it almost impossible for freelancers to continue to work through a limited company.”
“To limited company directors – from project managers to graphic designers – this is salt in a year of wounds.”Andy Chamberlain, Director of Policy at IPSE
Rebecca Seeley Harris, a former adviser to the office of tax simplification and chair of the Employment Status Forum, explains in a blog the impact the changes will have on those that were excluded from “meaningful help” during the pandemic:
“The levy set out today by the Prime Minister will be made on both the employed and self-employed whose income falls above the Primary Threshold/Lower Profits Limit of £9,569. The dividend rate will be increased to 8.75% and 33.75% respectively. This will increase from April 2022.
“The Treasury report states that only 40% of individuals are affected by the increase because of the combination of the £2,000 tax-free allowance and the personal allowance. But this 40% is made up of those who were also excluded from any meaningful help during the pandemic. They are the forgotten and now bear this burden too. Thousands are still struggling, especially those in events, hospitality and the arts.”
How will contractors employed by umbrellas be impacted?
- Contractors employed by umbrella companies will see a 2.5% increase in tax
“In the case of umbrella company workers, most will end up paying both the employers and employees NICs rises so they will be taxed twice. This is obviously another blow to workers who are already in a precarious position. This will include care workers and NHS staff (working in the sector that the levy is supposed to fund) going through umbrellas – more and more are expected to be self-employed or must agree to be employed through agency umbrellas, many of which are unethical. It’s an untenable situation for them.”James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk
How will sole traders be impacted?
Sole traders pay two types of National Insurance: Class 2 (£3.05 a week) if their profits are £6,515 or more a year; and Class 4 if their profits are £9,569 or more a year.
Sole traders pay 9 %Class 4 NICs on profits between £9,568 and £50,270 and then 2 % on anything they earn above that. The changes when introduced will mean they will now pay 10.25 per cent and 3.25 per cent respectively on their profits.
How much less take-home pay for employees?
- If you earn £20,000 a year, you currently pay £1,251 a year in NICs, which will increase by £130 a year from April 2022.
- If you earn £30,000 a year, you currently pay £2,451 a year in NICs, which will increase by £255 a year from April 2022.
- If you earn £50,000 a year, you currently pay £4,851 a year in NICs, which will increase by £505 a year from April 2022.
- If you earn £80,000 a year, you currently pay £5,479 a year in NICs, which will increase by £880 a year from April 2022.
- If you earn £100,000 a year, you currently pay £5,878 a year in NICs, which will increase by £1,130 a year from April 2022.