Chancellor Philip Hammond is taking a beating over the decision in his Spring Budget to increase the amount in National Insurance Contributions (NICs) many of the country's 5 million self-employed people must pay.
It broke the Conservative party's 2015 manifesto commitment – on which they won a majority in the House of Commons – not to raise National Insurance over the course of the parliament.
Hammond was pasted for targeting the self-employed on the front pages of the following day's newspapers, with headlines like "Spite Van Man" and "Rob The Builder". Now there's talk of a U-turn.
But it's well-known that the self-employment sector is awash with tax evasion. Isn't it about time the self-employed were forced to pay more?
The self-employed can manage down their tax burden legally. Often this is with good reason, given they do not get the same employment rights such as sickness pay or parental leave, and are therefore in a more precarious position than employees. But the system is abused.
According to HMRC there is a £36bn (€41.4bn, $43.8bn) "tax gap" in the UK during the 2014-15 fiscal year, the most recent data for which data is available. The tax gap is the difference between what was collected by the tax office in reality and what in theory it thinks it should have raised.
Significant chunks of that tax gap is accounted for by the self-employed. The hidden economy – including 'ghosts', whose income is completely unknown to HMRC, and moonlighters, who are on the radar but have undeclared earnings – makes up £6.2bn of the tax gap.
Evasion accounts for £5.2bn. This figure includes those who don't declare all of their income, such as the self-employed who work 'cash in hand' and massage down the real numbers when they make filings to the tax office.
The amount HMRC thinks it misses out on through incorrect self assessments by business taxpayers – many of which are self-employed – was £7bn. And this is before we get into the VAT receipts claimed back with little or no business justification.
Essentially, Hammond raised the amount of National Insurance that self-employed people earning over £16,250 a year must pay, eventually leading to a further £2bn for the Treasury.
The self-employed paid less National Insurance because they weren't entitled to the same level of state pension or benefits. But the government's pension reforms have narrowed the difference between employees and the self-employed.
"Since 2016 self-employed workers now build up the same entitlement to the state pension as employees, a big pension boost to the self-employed," Hammond said in his Budget speech.
"The difference in National Insurance Contributions is no longer justified by the difference in benefits entitlement. Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system.
"Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way."
The chancellor said an employee earning £32,000 will incur between him and his employer £6,170 of National Insurance Contributions. But a self-employed person earning the equivalent amount will pay just £2,300.
"The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5bn this year alone," Hammond warned. "That is not fair to the 85% of workers who are employees."
Do you agree with Hammond's National Insurance hike for the self-employed?
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