The chancellor delivered his spring budget yesterday. One of the main points was the national insurance (NI) increase for the self- employed.
At Woodville we agree with most of the complaints against the rise. Mainly the comparison being made between employed workers and the self-employed. We feel there should be some tax advantage for being self-employed for the following reasons –
- Entrepreneurs take risks, and if they pay off then they may become employers themselves. This helps to grow the economy by increasing the amount of taxes they pay.
- They aren’t entitled to holiday pay, a benefit which accounts for around 12% of an employee’s salary.
- They struggle to receive sickness benefit as it’s often means tested.
- They don’t receive parental pay.
- Pregnant ladies miss out on the 90% element of maternity pay which employees receive for the first 6 weeks of their leave.
However, the Chancellor – ‘Spreadsheet Phil’ – disagrees, and there will be an NI increase for the self-employed.
From 6th April 2018
- Class 2 NI will be abolished, saving £145.65 per year
- Class 4 NI will increase from 9% to 10%
From 6th April 2019
- Class 4 NI will increase from 10% to 11%
However, the personal tax allowance will increase to £11,700 over the two years. This is the point at which you pay income tax.
How much extra will I need to pay?
We did a few sums last night based on £32,000 profits (as mentioned by Spreadsheet Phil) and came up with the following results –
In 2018-19 compared to 2017-18, you will pay an extra £53.75 in tax & NI. Whilst there’s a 1% NI increase, there’s no Class 2 NI to pay so the difference is negligible.
In 2019-20 compared to 2018-19, you will pay an extra £179.40 overall. So the difference over 2 years is £233.15.
What can I do?
Unfortunately, unless you decide to up-sticks and head to a tax haven, you’ll need to pay the extra.
To cover the tax rise, you could increase your prices. You would need to earn around £15-20 / month extra to cover the loss after the extra tax.
You could also consider trading through a limited company. Although the tax benefits aren’t as enviable as they once were, you could look to save £500-1,000 / year in tax depending on earnings and how your pay structure is set up. Plus, you could have the added benefit of the company making pension contributions or paying childcare for you. This would decrease the amount of tax you’d pay, increasing the saving you could make.
At Woodville, we fully support business owners and help them to fulfil their goals and ambitions. If you want further advice on how we can help you save money & time, whilst helping you to grow your business, contact us today.