Budget 2017: what HR needs to know
- Increase in national insurance rates for self-employed; new emphasis on vocational education
- Main rate of NICs for self-employed will rise to 11 per cent by 2019
- New technical T-levels, backed by work placements, to boost skills
- £5m to encourage 'returnship' initiatives among employers
Most self-employed individuals will pay increased national insurance contributions (NICs), it was announced in last week’s budget, as chancellor Philip Hammond aims to reduce the ‘tax advantages’ of opting out of full employment.
Class 4 NIC rates for the self-employed will rise from the current 9% to 10% in April 2018 and 11% in April 2019.
The change will affect all self-employed individuals earning more than £8,060. At the same time, class 2 NICs paid by those who earn more than £5,965 are being abolished; the net effect is that all those earning more than £16,250 from self-employment will pay more tax.
Around half of the self-employed currently earn £13,000 or less, according to figures from the Resolution Foundation. The government said the shift would “better reflect the small differences that remain” between the self-employed and employees following the introduction of the new state pension in April 2016.
The widely anticipated move also reflected the Treasury’s growing concern over the revenue being lost by the growth in self-employment, much of which has been attributed to gig economy workers, or companies encouraging staff to become self-employed.
Ian Brinkley, acting Chief Economist at the CIPD, said it highlighted the challenges associated with a population that was working in “increasingly diverse ways”. He said:
“With more people likely to become self-employed or involved in other forms of atypical employment in the future, the tax issues highlighted by the Chancellor will only become more problematic.”
The plans came in for immediate criticism in some quarters. Jon Greer, Old Mutual Wealth’s pensions expert, said they would “undoubtedly prove controversial and attract criticism” from those who believed they breach governmental pledges not to boost personal taxes.
“The number of self-employed people in the UK has risen steadily over the last two decades. But it is estimated that an NICs cross-subsidy of around £5bn exists between the self-employed and employed.
“Despite this double-whammy tax change, it should not be forgotten that while the self-employed currently enjoy a reduced rate of national insurance, they also miss out on sick pay, holiday entitlement and other perks enjoyed by those in employment.”
Further reform is likely in this area, with the government suggesting it will consult on changes to parental benefits for the self-employed this summer, as well as reviewing pension reforms. The self-employed are currently excluded from auto-enrolment unless they opt to make their own arrangements.
The chancellor also pledged £5m to increase the number of ‘returnships’ in the public and private sectors to help people return to employment following a career break.
And he confirmed the introduction of a new regime of so-called T-levels, the flagship measure in an overhaul of post-16 education he said would put technical skills on a par with academic qualifications, and make sure students were ‘genuinely work-ready’.
Under the reforms, vocational courses will last up to 50% longer, the equivalent of an extra 900 hours of teaching a year. The 13,000 current qualifications will be replaced by 15 standalone vocational courses, or T-levels, all of which will be backed by work placements.
Lizzie Crowley, Skills Adviser at the CIPD, said:
“It’s great to see recognition that tackling the UK's skills challenges is a top priority. With a significant slowdown in workers coming from the EU, upskilling the existing workforce and the next generation is more vital than ever.
“Technical education has been a longstanding weakness in the UK skills system. Additional investment to help equip the next generation of workers with technical skills is therefore very welcome as we head towards post-Brexit Britain.”
Hammond also pledged £3m towards funding support for Britain’s ‘brightest and best research talent’ through 1,000 PHDs and fellowships in science, technology, engineering and mathematics, and confirmed a £40m commitment to promoting lifelong learning.
Crowley said the CIPD was looking forward to hearing more about how “the government is going to improve lifelong learning, to ensure employees are able to perform to their full potential at work, keep their skills up to date and feel challenged and motivated in their role”.
Hammond said the government would be actively monitoring national insurance employment allowance, following reports that some companies had been using schemes to avoid paying the correct national insurance contributions. It will also publish a call for evidence to better understand the use of employee expenses in the income tax regime.
Originally announced in last year's Autumn Statement, this will include expenses that are not reimbursed by the employer.
Mark Groom, Tax Partner at Deloitte, said:
“The announcement hints that HMRC may be concerned by expenses that are not reimbursed by employers. It’s early days, but if there is a concern with expense claims, with the advent of tax digitalisation, this could be tackled by requiring employees to upload evidence through their personal tax account to substantiate claims for tax relief.”
The budget confirmed that the national living wage would rise from £7.20 to £7.50 from April 2017, and that the income tax personal allowance would increase to £11,500, with the higher-rate threshold rising to £45,000. Hammond reiterated the government’s commitment to raising the personal allowance to £12,500 and the higher rate to £50,000 by the end of this parliament.
This article first appeared at PeopleManagement.com and is reproduced with kind permission.