The U.K.’s Chancellor of the Exchequer Philip Hammond delivered his first Spring Budget to Parliament, announcing, among other things, that self-employed people would have to pay increased national insurance contributions (NICs) over the next two years. His announcement puts into question whether the U.K. will remain the best place to start and grow a fintech business.
In a report from the BBC, Hammond said that there had been a ‘dramatic increase’ in the number of people working as self-employed and that the reason a person decided to become self-employed should not be ‘differences in tax treatment.’
Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system.
In April 2018, Class 4 self-employed payments will see NICs increase from 9 percent to 10 percent and then to 11 percent in April 2019 for those earning between £8,060 and £43,000. Class 4 employees contribute 12 percent. Those earning above £43,000 will continue to pay 2 percent and those under £8,060 will pay nothing.
Class 2 payments, which have a lower threshold of £5,965 or more in profits a year, will be abolished.
Taken together, only those self-employed with profits over £16,250 will have to pay, on average, around £240 a year, Hammond stated.
The combination of the abolition of Class 2 and Class 4 increases I have announced today, raises a net £145m a year for our public services by 2021-22, an average of around 60p a week per self-employed person in this country.
Yet, the Federation of Small Businesses is reported to have criticized the changes to the rate of NICs for self-employed people.
Mike Cherry, chairman of the federation, said:
This undermines the government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business.
Not only that, but with Brexit negotiations causing a stir amongst many, it wouldn’t be surprising if fintech firms decided to establish themselves elsewhere.
With many young fintech firms taking on risks of establishing their own business this news may likely give potential new companies something to think about.
Furthermore, the fact that Hammond has announced a NIC rate increase for the self-employed could impact the U.K.’s fintech scene, potentially stalling new businesses from establishing themselves in the U.K. and helping to grow the sector, which, at present, is the global hub.
Featured image from Shutterstock.
Last modified: May 21, 2020 10:01 AM UTC