Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA) has welcomed the decision by Prime Minister Theresa May to defer a vote on her Chancellor’s controversial Spring Budget proposal to increase taxes on the self-employed.
Mrs May’s intervention came just a day after Chancellor Philip Hammond announced his intention to raise National Insurance Contributions (NICs) for self-employed workers. The decision to delay the vote arose after a significant backlash against the measure by more than a dozen Tory MPs and harsh criticism from the Labour Opposition.
The vote will now take place in the autumn, when Mr Hammond is scheduled to deliver another budget. Should the NIC proposal be implemented, it will cost 2.5 million self-employed people an average of £240 per year in extra tax.
Shadow Chancellor John McDonnell denounced the measure as an “unfair £2 billion tax on self-employed low and middle earners” and pledged Labour opposition to it.
Commenting on the decision to delay the vote, FCSA CEO Julia Kermode said: “It was naive of the Government to think they could railroad in another reform to hit the self-employed without being challenged, so I welcome the PM’s move to pause to reflect, reconsider the potential impact of raising NICs for this group of workers and wait for Matthew Taylor’s report into the modern working practices due out in the summer.”
She expressed hope that the Government may now realise that its assumption that such a tax hike would “level the playing field” between the self-employed and the employed was fallacious. Ms Kermode also pointed out that people who have chosen self-employment do not have access to the very statutory benefits that NICs fund, such as paid sick leave and unemployment pay.
Furthermore, an FCSA analysis of a 2012 XpertHR survey found glaring differences between the two categories of worker in respect of maternity allowance: employees receive at least 57 per cent more than self-employed people.
Ms Kermode’s hope that the delay will result in a reprieve may, however, be optimistic in the light of comments made to the BBC by Matthew Taylor last week. He said that he believes that it is “fair” that the self-employed should pay more tax.
One possible outcome of such a tax hike, along with IR35 changes affecting thousands of contracting professionals in the public sector, may be to strengthen the appeal of the Umbrella Company model of engagement. This permits contractors to work flexibly on a succession of short-term projects, and as Ms Kermode noted earlier this month, it also provides them with all the statutory rights and benefits of permanent employment as well as central management of their financial affairs.