Empowering the Freelance Economy

“Short sighted attack”: Freelancers and small businesses hit with Dividend tax, NI hike & health/social care levy

The Loates HR Consultancy Team
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SPECIAL REPORT

  • The government has announced a 1.25% Health and Social Care levy based on National Insurance contributions to tackle the social care crisis.
  • “Another short-sighted attack from the government on the self-employed”: Seb Maley, CEO of tax consultancy Qdos responds to the move by the government over the National Insurance Contribution and the subsequent dividend tax from April 2022.
  • Small business owners respond: see their comments at the end of this report.

  • The government has announced a 1.25% Health and Social Care levy based on National Insurance contributions to support the NHS.
  • This covers earned income and those working past state pension age.
  • The dividend tax also announced may help to offset the fact that many workers past state pension age are running their own small business. The increase will increase by the same amount as the 1.25%.
  • From October 2023, the Government will introduce a new £86,000 cap on the amount anyone in England will need to spend on their personal care over their lifetime.
  • From October 2023, anyone in England with assets of less than £20,000 will not have to make any contribution for their care from their savings or the value of their home.
  • Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support in England
  • Currently, anyone with assets over £23,250 in England must pay their care costs in full.

Helen Morrissey, a senior pension and retirement analyst at Hargreaves Lansdown said that the government’s announcement to raise national insurance rates and to replace the hike with a health and social care levy has attracted criticism for placing the burden of dealing with the social care crisis on the shoulders of younger working generations.

“The inclusion of the earned income of people past State Pension Age from April 2023 will go some way towards assuaging critics. The number of people who continue to work past State Pension Age has grown hugely in recent years with approximately 1.28m currently in work. This reflects increasing longevity and the fact that many people continue to work because they want to. It makes sense that this group also contributes to this levy.

“We estimate the introduction of the levy will cost someone on a £30,000 salary an extra £255.40 per year while someone on £50,000 per year will pay an extra £505.40 per year,” said the retirement specialist.

What is the £86,000 care cap?

It is important to note that the introduction of the £86,000 care cap only covers care costs and not accommodation costs which can be substantial, and people will need to ensure they have adequate income to continue to meet these costs, warns Morrissey.

That said, the pension and retirement analyst did add that while this announcement certainly doesn’t solve the problem, it will help many people, particularly those who wish to remain in their home.

“Under the current system anyone with more than £23,250 in assets has to meet their care costs in full and today’s announcements significantly increase that ceiling to £100,000 from October 2023 so again this will provide some comfort, though will not help those needing care more urgently,” she said.

It is important to say that the care crisis does not just affect the elderly.

“Meeting these costs can affect the finances of entire families. It is not only a case of meeting care home costs but many people, women in particular provide enormous amounts of unpaid care and risk sacrificing their own long-term financial resilience as a result,” said Morrissey.

We estimate the introduction of the levy will cost someone on a £30,000 salary an extra £255.40 per year while someone on £50,000 per year will pay an extra £505.40 per year.

Helen Morrissey of Hargreaves Lansdown

Seb Maley, CEO of Qdos, a tax consultancy and insurance specialist for freelancers, contractors and the self-employed, called the move by the government over the National Insurance Contribution and dividend tax from April 2022, “another short-sighted attack from the government on the self-employed.”

“Raising NICs and dividend tax is a move that directly impacts millions of people working for themselves – people who have arguably been hit the hardest by the pandemic. Once again, it seems that the smallest businesses are bearing the brunt of tax reform. Yet still, it will be the flexibility, dynamism and skills of the independent workforce that the government needs most to speed up the economic recovery. 

“The national insurance tax hike will hit employers too, pushing up the costs of hiring workers on the payroll. It goes without saying that this could stifle employment growth. With this in mind, businesses that have needlessly forced their contractor workforce inside IR35 or insisted they work PAYE in response to IR35 reform should rethink this decision immediately,” said Maley.

Once again, it seems that the smallest businesses are bearing the brunt of tax reform. Yet still, it will be the flexibility, dynamism and skills of the independent workforce that the government needs most to speed up the economic recovery. 

Seb Maley, Qdos

“Shame on you, Boris”

Small businesses respond to Government’s £12bn tax rise:

Natalie and Adam Bamford, the Husband and wife duo behind Colleague Box

“This is a textbook example of how to kick a person when they’re down. Inevitably we were going to have to pay for the pandemic but aren’t we still in the pandemic? For a nation that is still mourning the loss of ‘normal life’, it just feels like this is another blow and another reason for feeling thoroughly deflated.”

Natalie Bamford, Managing Dirctor of Colleague Box

Sarah Loates of Loates HR Consultancy

“Credit to the government for tackling issues such as social care, previously in the too-hard-to-do pile. However, I do not agree with increasing NICs, as many small businesses are still on life support. Big hikes of this nature will only increase pressure on cashflow and reserves at a time when companies need to invest to grow.”

Sarah Loates, Loates HR Consultancy

This image has an empty alt attribute; its file name is Karen-Watkins-1024x1024.png
Karen Watkins, Rowan Consulting

“Yet another massive kick in the teeth for those hit hardest over the past year and a half, including those just entering the workforce to those small business who continue to be the forgotten! It also contradicts any form of so called ‘levelling up’. Shame on you, Boris.”

Karen Watkins of Rowan Consulting

Jez Lamb, Beers@No.42

“Things are tough enough as they are for us small business owners and the Government seems to want to make it tougher still. As a business owner you’re effectively hit in the pocket twice with contributions both as an employer and employee. As we emerge from the pandemic it’s like coming up for air only for another wave to knock you back under.”

Jez Lamb, Founder of Beers@No.42
Sarah Wilson, Cottrell Moore

“The Manifesto pledge was put together prior to the global pandemic and, unless I’m missing something, the Government didn’t have a crystal ball to know it was coming. Therefore, as much as we dislike any increase we all have to appreciate that tremendous costs have been incurred to keep the country going and they need paying back. I do however think that the NHS requires proper management of costs, we can’t just rely on increased taxes without the costs being managed effectively, too.”

Sarah Wilson, Owner of recruiter Cottrell Moore
Matthew Fleming-Duff, Cherry Mortgages & Finance

“I completely understand the need to increase tax receipts post-pandemic, but why should National Insurance bear the brunt of these increases? Corporate tax avoidance in the UK is shameful, so surely firms such as Amazon, Netflix and Google – who have seen profits surge during the lockdowns – should be brought to the taxman’s dinner table sooner rather than later?”

Matthew Fleming-Duff, Director at Cherry Mortgages & Finance

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