In todays 2017 budget it was announced that millions of self-employed workers are to face high National Insurance rates. This will essentially narrow the gap between the self-employed and conventional PAYE employees.
The average self-employed person will face a 60p more expense per week. The most affected party by the change is partners in professional firms, such as accountants and lawyers.
The tax-free dividend allowance that is often used by company directors, will be cut from £5,000 to £2,200.
Self-employed workers will now have to pay two types of National Insurance:
1. A tax fund that benefits the state pension
2. Job seekers allowance
The 2017-18-tax year will see self-employed workers pay Class 2 NI at £2.85 per week on profits between £6,025 and £8,164. Profits that exceed the £8164 cap will be subject to Class 4 NI at 12% on earnings between £8,164 and £45,000.
From April 2018 Class 2 NI will be abolished and Class 4 NI will rise from 9% to 10%. The national insurance is due to rise a further 1% in April 2019.
Chancellor Hammond's argument supporting the decisions behind the 2017 Budget are that it is unfair for an employee earning £32,000 to pay £6,170, while a self-employed worker will pay just £2,300.
Much like employees, self-employed workers have a ‘personal allowance’ this means that they can earn up to £11,500 in 2017-18 before having to pay income tax. However, unlike employees, self-employed workers pay income tax on the previous year’s profits, revenues after business expenses. IT is possible to deduct certain costs and losses from previous years in some cases.
Income Tax and National Insurance is paid on the 31st January each year, based off of the profits that were made in the previous year.