With Brexit looming, there is more uncertainty than ever about this year’s Autumn Statement. You may have noticed that The Budget falls earlier than usual this year and this is because of the need to clarify spending, tax and all other financial decisions before we can negotiate and finalise a Brexit deal.
There are many speculations circulating about what we can expect in the final statement on 29th October and here are some of the predictions;
Tax break for the Self-Employed. The government have back tracked… What does this mean for you?
The government has decided not to scrap Class 2 National Insurance Contributions for self-employed people.
What does this change mean for your business?
It’s a controversial move that has divided opinion in both the small business and political worlds. So has the government done the right thing in backtracking on its plan?
Reversing the decision to drop Class 2 Contributions will leave 2.7 million self-employed workers £150 a year worse off, reports the BBC. But on the flipside, it could save those earning below the £6,205 profit threshold from a substantial tax hike.
What does the National Insurance u-turn mean for my business?
It very much depends on your profits. If you earn more than £6,205 a year, the government’s 180 will leave you slightly worse off, but if your profits are less than £6,205, you’ll be far better off than if the plan to simply scrap Class 2 Contributions had gone ahead.
I make a profit of £6,205 or more a year
Self-employed workers who make an annual profit of more than £6,205 will have to keep paying their Class 2 National Insurance. At current rates of £2.95 a week, that is £153.40 a year.
Class 4 Contributions will also stay the same. Those making a profit of over £8,424 need to pay nine per cent on profits up to £46,350, and two per cent on any profits over that amount.
I make a profit of less than £6,205 a year
If you make an annual profit of less than £6,205, you don’t have to pay Class 2 National Insurance. However, you may have been paying it voluntarily to make sure you get access to the State Pension when you retire.
Had the government stuck with its plan to get rid of Class 2 Contributions, you’d have been moved to Class 3. Whereas weekly payments for Class 2 are £2.95, weekly payments for Class 3 are £14.65 for tax year 2018-19. The change would’ve meant you having to pay around five times more National Insurance.
The government held a consultation on how to get around this unintentional burden on the lowest-earning self-employed workers. But ultimately, they decided that the possible solutions would only make the tax system more complicated, going against the plan’s purpose – to make tax simpler.
More in the pot for the Autumn Budget
By keeping the Class 2 Contributions rules for the self-employed as they are, the Treasury will gain more than £350 million a year over the next three years, reports the BBC. So how will it spend the money it’s saving?
The Chancellor hasn’t made any announcements yet, but we could well find out in the Autumn Budget – along with what else he has in store for small businesses.
How do you think the government should spend the money it’s saving by keeping Class 2 National Insurance Contributions for the self-employed in place?