A planned tax cut for 2.7 million self-employed workers has been scrapped by the British government.
Originally, the government had planned to scrap Class 2 National Insurance contributions in April, paid by the self-employed with profits of £6,205 or more a year, but the move had been delayed by 12 months and has now been abolished entirely. The move had cited concerns that the low-earning self-employed workers would pay more to access the state pensions, and it would make the tax system more complex.
Shadow chancellor John McDonnell labelled it a “betrayal of the self-employed”.
Previously there had been concerns that the move would hit more than 300,000 self-employed people earning less than £6,000 a year who were paying the Class 2 NICs voluntarily, in order to access the state pension.
Those affected would have faced being moved to Class 3 contributions, resulting in weekly payments increasing from £2.95 to £14.65.
In a written statement, Treasury Minister Robert Jenrick said that the change had been intended to simplify the tax system for the self-employed, but it has “become clear” that a “significant number” of the self-employed with the lowest profits would have ended up paying more.
The statement continued: “Having listened to those likely to be affected by this change, we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society.”
Trying to address the concerns would have meant “greater complexity to the tax system, undermining the original objective of the policy”.
“The government remains committed to simplifying the tax system for the self-employed and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances,” Jenrick added.
However, McDonnell said: “This is yet another betrayal of the self-employed. These people are the engine of the economy and have been let down again, while giant corporations have seen their tax bills slashed.”
The Federation of Small Businesses (FSB) reported that the move would hit more than 3 million people and would potentially “net the Treasury more than £350m annually in the three years to 2021”.
Commenting on the abolition of the move, FSB chairman Mike Cherry said: “The self-employed community has been let down today, missing out on a promise to reduce their tax burden.
“This raises serious questions once again about the government's commitment to supporting the self-employed.”
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