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Currently, self-employed people making a profit of over £11,000 and under £43,000 pay 30% tax on each tax return every January. That’s 20% tax for the financial year just gone and 10% tax for half the year ahead. This is projected, as the taxman assumes you will earn more each year – as all self-employed people know, there is no guarantee of this, particularly when some companies pay their staff the same rate as they did in 1997…
National insurance is calculated as follows:
Class 2 national insurance contributions are for people making a profit of over £5,965
Class 4 national insurance contributions are for people making a profit of over £8,060
Many self-employed people also work for PAYE companies and pay additional national insurance there.
Phillip Hammond’s budget has broken the Conservative’s 2015 election promise not to increase national insurance, VAT or income tax and changed the following for self-employed workers:
Put up Class 4 NI contributions by 1% each year, rising from 9% this year to 10% in 2018 and 11% in 2019.
So, someone who is self-employed and earning £25,000 (after expenses are taken off) will pay £2500 in national insurance next year and £4,200 for their tax bill, costing them an extra £250, thanks to the new budget measure.
It’s true that this brings the self-employed worker more in line with the PAYE worker – as PAYE Class 1 NI contributions are 12% – however, nothing else is in line! In contrast, self-employed people receive no holiday pay, sick pay or employers paying into a pension. The state pension is £155.65 for everyone but, on top of that, an employed PAYE worker who has paid into a pension scheme will generally also get a 75% contribution made by their employer each month. Most self-employed people I know are ‘JAMs’ (just about managing), so there is no money left over to put into a pension and no employer to make a contribution. Maternity pay is £27 a week for those who do not earn enough to pay Class 2 national insurance contributions, and £139.58 for those who pay Class 2 or Class 4 contributions. Both of these pay types are for 39 weeks. Whereas, PAYE maternity pay is 90% of earnings for the first six weeks and £139.58 for the subsequent 33 weeks.
This is estimated to affect 2.5 million people – from actors to plasterers, from playwrights to taxi drivers. And 1.6 million of these people are basic rate tax payers. Meanwhile, the threshold for 40% tax has been increased from £43,000 to £45,000 and more funding has been given to ‘free schools’ whilst state schools are set to lose up to 3% of their budget in the next two years.
To see how you may be affected, check out this calculator. Seems like, although I’m a budget ‘loser’ for being self-employed, I am a ‘winner’ for being a non smoker…
Nadia works as an actress. She also teaches acting and storytelling to adults at City Academy and is an associate for National Youth Theatre, directing young people and leading inclusivity training.