Empowering the Freelance Economy

National insurance tax hike: “now is not the time”

"This money will, in fact, go to the NHS (not social care) who are hiring no less than 42 new CEOs on £270k plus salaries per year," says British startup founder Michael Oszmann (pictured)
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With a spree of tax hikes introduced at the height of a cost of living crisis, April 2022 could go down in British political history as the Spring of discontent.

“Now is not the time for a tax hike: the National Insurance rise in April needs to be shelved,” says Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

Coles says that the spring is already going to be “an agony of price rises, with every last penny being squeezed from our budgets.”

The government shouldn’t be tightening its grip on our finances at a time like this.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

Even though Prime Minister Boris Johnson defended the tax hike this week, there are some early signs that some MPs are questioning the timing of the rise.

Conservative MPs are all too aware that if tax revenues are not spent as their cash-strapped constituents expect them to, they will be in the firing line come voting time.

Notably, MPs that have met with Chancellor Rishi Sunak last week warned him that the 1.25% additional national insurance burden will make it very hard for families to make ends meet.

According to a Mail on Sunday report, one MP source told the newspaper: “Rishi referred to it [the National Insurance increase] as ‘the Prime Minister’s tax’, which seemed quite pointed, to put it mildly. We were left with the impression that he didn’t want to be associated with it.”

Political retribution aside, startup owner Michael Oszmann, founder of Buy Britain, also has his views on the pending tax increase and whether the monies raised will actually go towards what taxpayers expect.

“The proposed tax increase is bad for individuals and bad for business. As a start-up, it’s expensive and risky taking on new employees and this makes it cost even more,” says Oszmann.

I support paying tax where we get value as taxpayers or the government is providing essential services. But this money sounds like it is going to disappear into a black hole. Especially when we hear that this money will in fact go to the NHS (not social care) who are hiring no less than 42 new CEOs on £270k plus salaries per year.

Michael Oszmann, founder of Buy Britain

Two crises to contend with

Coles is not questioning that the NHS and social care need the additional funding, but she believes any national insurance tax hike right now could actually put more NHS health workers into deeper financial troubles:

Tax hikes weren’t considered during the peak of the health crisis, and they shouldn’t be brought in at the peak of a cost of living crisis either.

The rise hits lower earners hardest, because it kicks in at lower income levels than income tax, and it places a heavier burden on lower earnings. It’s also only charged on earned incomes, which means it doesn’t fall equally on all of us.

Coles explains:

“A rise of 1.25 basis points doesn’t sound dramatic, but that doesn’t translate into a 1.25% rise in what you pay. Someone earning £30,000 currently pays £2,452 a year in NI, and the rise would increase it by £256. That’s effectively a rise of over 10% in their NI bill.”

Sarah Coles, Hargreaves Lansdown Senior Personal Finance Analyst and Podcast Host for Switch Your Money On

Why the NI tax hike must be put on hold

Shelving the NI rise would stop the government from adding to injury, according to the Hargreaves Landown personal finance analyst, but it also has the power to intervene to stop energy price rises tipping families over the edge financially.

“We can still hold out hope that something comes from all the talks the government is said to be having with the energy industry. It also needs to constitute more than a boost to the Warm Homes Discount in its current guise, because although it supports those on lower incomes, it is currently paid for entirely by other energy customers,” says Coles.

The NI take increase is considered by some small business owners as simplistic, such as Peter Francis, an Engineering Director at manufacturing consultany MAT Ltd.

“Whilst logically, we can’t spend what we don’t have, this tax hike is a simplistic approach, leaving both the financial and adminstrative burden on individuals and SME businesses,” suggests Francis, who is among a growing number of tax payers working for small businesses that want the tax hike abandoned altogether.

The waste that most government big-headline and vanity projects result in is obviously too difficult to reduce, so it’s easier to target those without a strong enough voice.

About time the political class got its act together and gives proper support and encouragement to our SMEs instead of viewing us and the public as political savings accounts and instead help us to become cash generators.

Abandon this tax hike and find someone with a good business head to find a less self-destructive approach.

Peter Francis, an Engineering Director, MAT Ltd.

Contractors paying twice the price just to work?

Andy Chamberlain, Director of Policy at IPSE, said in a previous Freelance Informer report that after the financial damage of the pandemic, exclusion from support and the changes to IR35 taxation, any more new taxes placed on limited company freelancers, such as the upcoming one on dividends, will make it almost impossible for them 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

Arguably, short-sighted tax policies have already led to fixed term contractors being pushed into umbrella company payroll schemes. For some contractors, this means they will end end up paying two lots of national insurance.

HMRC has been notified of this development in ministerial committee meetings, but so far, has not investigated fully into the impacts of unregulated umbrella company billing practices on individual taxpayers.

James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk , explains:

“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.”

Do you believe that the National Insurance tax hike set for April 2022 is too simplistic? Do you have a suggested alternative?

If the goverment were to do away with IR35 what alternative, if any, could be put in its place?

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