In his Spring Budget speech on March 8th the UK Chancellor of the Exchequer, Phillip Hammond, whilst cracking jokes, announced that the self employed had an unfair advantage over employees because they paid less national insurance than employees. And so, now the pensions regime had changed and the self employed would benefit from higher pensions it was time to make it fair. Self employed national insurance would increase by 1% from April 2018 and a further additional 1% from April 2019. Since the budget announcements, he has now retracted this statement.
So where do you stand as a self employed person?
Currently self employed individuals who are sole traders or partnerships pay two types of National Insurance.
Class 2 –
This is a fixed amount, currently £2.85pw = £148.20 per annum. It is this payment that has, in the past allowed self employed individuals to qualify for basic state pension only.
Class 4 –
This is charged as a % of profits like tax and paid with tax in July and January. Currently 9% is paid on profits exceeding £8,060 per annum. The payer gets no benefits from this.
Hence a person with taxable profits of £25,000 would pay £1,672.80 for their right to basic state pension and nothing else. For comparison, the voluntary contribution would be £733.20. It’s clear that the self employed have overpaid in the past. In this comparison, more than double.
The chancellor compared the contributions with those in employment, who would currently pay £2,032 - £360 more than their self employed counterpart.
BUT the employee in the past will have additional earnings related to pension to look forward to, which was higher than the basic pension and reflected the employee’s earnings. Employees also receive a range of other benefits which are not available to the self employed.
So when the Chancellor talks about fairness he didn't acknowledge the unfair situation of the past or the difference in the overall condition.
The situation with pensions has been equalised so that anyone who has paid 35 years contributions will get the same amount, currently £155.65 per week which is £36.36 per week more than the basic state pension. So the good news is that the self employed will at last get value for their contributions. This is FAIR.
The increases would have amounted to only an extra £20 in 2018/19 after taking into account the removal of the Class 2 payment. But in 2019/20 the additional contributions would have amounted to £168 bringing the contributions to approximately the same as an employee.
The Chancellor insulted the self employed in his speech, which is unforgivable, and indicates a complete lack of understanding of small businesses by only acknowledging the differences in parental benefits. Being self employed is much different to employment as we know.
At least the self employed can comfort themselves in the knowledge that they are no longer DISadvantaged in the pensions regime. For that I give thanks!!
Thankfully Philip Hammond has seen the light, and decided against this increase in self-employed National Insurance. Which other changes may come in it's place we will have to wait and see.
If you need help or advice with this issue, or any other changes from the Budget 2017 then please get in touch, you can call us on: 01273 882200.
All details above were correct at the time of publishing - for more up to date information please
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