NI threshold change welcomed, but isn’t enough for freelancers and contractors
The National Insurance threshold has today (6th July) been raised, from £9,880 to £12,570 – saving an estimated 30m workers hundreds of pounds this year.
First announced in March by the former Chancellor, Rishi Sunak, in response to the developing cost of living crisis, the reform will reduce how much National Insurance Contributions (NICs) workers pay for the 2022/23 tax year.
Cost of living crisis deepens
The increase to the NICs threshold comes against the backdrop of soaring inflation and the cost of living crisis, with fuel, energy and food prices all increasing.
It means that workers across the country will not pay NICs on the first £12,570 that they earn, bringing the threshold in line with the personal allowance for income tax.
The move will especially protect workers on low incomes, with a government publication estimating that 70% of people who pay NICs will pay less of this tax as a result of the change.
Importantly, the same government publication states that the change will represent a tax cut for around half a million self-employed people “worth up to £165 per year”.
Measures “don’t go far enough”
However, speaking about the reforms when they were announced in March, Andy Chamberlain, Director of Policy at IPSE, said that the changes, while welcome, did not go far enough for contractors.
“While we welcome some of the measures announced…. [they] still don’t go far enough for thousands of freelancers that are recovering from the economic uncertainty caused by the pandemic.”
He went on to say that the changes “will do little to reassure self-employed households, already struggling as a result of existing government policies such as IR35, and now facing historic inflationary pressures.”
Tax break offers “little consolation” for contractors
Echoing Chamberlain’s thoughts was Qdos CEO, Seb Maley, who added:
“On one hand raising the National Insurance threshold is a step in the right direction. But while it gives millions of people a little breathing space as the cost of living crisis squeezes personal finances, astonishingly some people will end up paying more.
“The National Insurance tax break will offer little consolation to many self-employed and small business owners who are battling a host of tax changes – whether it’s IR35, dividend taxation or even next year’s Corporation Tax increase.”
“The fact of the matter is that the government could and should do more to protect this vital sector of the labour market.
“With a potential recession on the horizon, the flexibility, innovation and productivity of the UK’s self-employed workforce is needed more than ever.”