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Govt review puts National Insurance reform back on table

Taylor reviews recommends harmonising tax treatment of employed and self-employed in wake of Govt NICs U-turn

A flagship review of the modern labour market has paved the way for reform of National Insurance for the self-employed, just three months after the Government U-turned on its proposals to raise Class 4 contributions.

After the March Budget, the Government backtracked on one of its key proposals: to increase NICs for the self-employed amid a perceived unfairness between contributions and benefits when compared with employed workers.

Employers currently top up their employee’s NICs of 12 per cent with a further 13.8 per cent contribution. However, self-employed NICs are set at just 9 per cent with no additional charge to compensate for the employer top-up.

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The Royal Society of Art’s Matthew Taylor has released his Government commissioned report into work practices today, and has recommended an end to the discrepancy between employed and self-employed tax rates.

The Taylor report reads: “Currently, the different rates of National Insurance in particular mean that the UK system of taxing labour is not neutral – a self-employed person doing the same work as an employed person can pay a different amount of tax or National Insurance despite receiving similar contributory benefit entitlements in return.

“The Review considers that this situation is not justified, or sustainable, nor is it conducive to the goal of a good work economy.”

Taylor adds that the self-employed should receive the same benefits as those that are employed, even though differences currently are “relatively small”, for instance in parental benefits and contribution-based Job Seeker’s Allowance.

Aberdeen Asset Management head of retirement Gregg McClymont said the review should have focused more on pensions.

McClymont said: “There’s no two ways about it, this was a big missed opportunity. There’s nothing meaningful in the review about pensions. It makes no sense to not extend the pensions provision enjoyed by the majority of workers to those in the gig economy.

“These jobs have been created because the invention of the internet has changed the world of work for many people. Those changes are here to stay and the rules and laws that govern work need to catch up.”

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