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Self-employed tax cut scrapped

Self-employed tax cut scrapped
Friday, October 26, 2018

The government recently announced that it was to scrap a reform to National Insurance for the self-employed after discovering that some self-employed people would be left worse off.

If this is new to you, Panthera will explain what the government was originally trying to achieve with the reform and where it all went wrong.

What is Class 2 NI?

Class 2 National Insurance is paid by the self-employed at the rate of £2.95 a week once their earnings are at or exceed £6,205 in a year.

Class 2 National Insurance can be paid by those earning less than that amount if they choose. The reason why someone would want to do this is that payment of Class 2 National Insurance contributes towards their entitlement for benefits like Basic State Pension, Bereavement Benefits, Maternity Allowance, and contributory Employment and Support Allowance.

Why was there a proposal to abolish Class 2 NI?

Following a review, the Office for Tax Simplification, an investigatory body considering ways to streamline the taxation of earnings and consumption, described the system of National Insurance Contributions for the self-employed as being “particularly burdensome” and they requested that the government consider overhauling it.

The government then proposed to abolish Class 2 NI and reform Class 4 NI. Class 4 NI is paid at 9% of any profits/income between £8,424 and £46,350. Above £46,350, the contribution is 2% of earnings.

The proposed changes to Class 4 NI are complicated (you can read about them here) however at the start of September,  Chancellor Philip Hammond announced that the changes were to be scrapped; denying taxpayers the opportunity to pay £150 less per annum under the new system.

Many people are not happy about the volte face

In a written statement to the Commons, Treasury Minister Robert Jenrick said that, once the numbers on the new scheme were run again, “a significant number” of self-employed people would actually end up paying more. He said that the Government had responded to the “negative impacts it could have on some of the lowest earning in society”.

In response, Shadow Chancellor John McDonnell described the U-turn as “yet another betrayal of the self-employed (who are) the engine of the economy…while giant corporations have seen their tax bills slashed”.

The chairman of the Federation of Small Businesses, Mike Cherry said that “the self-employed community has been let down again” and he questioned “the government’s commitment to supporting the self-employed”.

Is it worth going limited?

Compared with five years ago, the opportunity to save on tax (both personal and company) by switching from being a sole trader to the director of a limited company have dwindled significantly.

However, if you’re self-employed, it may be worthwhile talking to your Panthera accountant about whether the increased accounting costs and compliance regulations with a limited company would be worth it by becoming the director of your own limited company.

Directors of limited companies generally pay themselves via a mixture of salary and dividends. If you earn £40,000 as a sole trader, you’ll be left with £31,374.76 after income tax and National Insurance (Class 2 and Class 4). However, as the director of a limited company, you would be left with £32,478.31 after your personal taxes and Corporation Tax are paid.

Reduce your tax bills with Panthera

For support and advice on matters of personal and corporate taxation, please call us on 01235 768 561 or drop us an email to – we’ll be back in touch with you shortly.

What our clients say

For us, there is nothing better than a happy customer. Here are just a few that let us know how much we mean to them.

Pete Dungey

Simple, efficient and most importantly, hassle-free.

We found Panthera via our search for a Xero expert. We knew the software we wanted to use, and needed a forward-thinking accountancy partner who could get us up and running, and teach us the ropes moving forward. Tory and her team have always been on hand to answer our questions, and help us to grow as a business, particularly during periods of big change, such as becoming VAT registered. They are always on hand to alleviate any concerns and help to keep our records in order, which makes our year-end accounts an absolute breeze! Being based in Bristol, our relationship is entirely email based, alongside one consolidation meeting at year end - this keeps things simple, efficient and most importantly, hassle-free.

Pete Dungey Kaleido Grafik Limited
Anita van Eijndhoven

Talk Our Language

The support and service we receive from Panthera Accounting is very good. Everything from regular meetings, a prompt e mail response and the transition of our Xero software (which we find very pro active indeed) has and is all remarkably efficient. We find Panthera talk our language and make any process as painless and easy as possible.

Anita van Eijndhoven Quidne-IT
Ash & Tim Lane

Panthera brush aside the stereotype of the typical accountant

We got in touch with Panthera Accounting by way of a recommendation; we haven't looked anywhere else since. They are an extremely professional yet relaxed group of people. We were slightly daunted by the idea of accountants but Panthera brushed aside y the stereotypes. They are very understanding when answering any questions we may have. They are completely efficient, offer sound business advice, and are fantastically priced. We will continue to recommend them.

Ash & Tim Lane Starveacre Fencing
Jayne Johnson

An Asset to my Business!

The whole team at Panthera are great! Working with them has been a huge support to my growing business. They help me to understand the numbers I need to know. They give me technology solutions like Xero so that I can process things quickly and have access to my own figures. They are quick to reply, highly knowledgeable, nothing is too much trouble and as well as making sure that everything is compliant and on time, they are enthusiastic, professional and fun to work with.

Jayne Johnson Better People
John Baker

Absolute joy - they provide a first class service on every level

Working with Tory and the team at Panthera is an absolute joy - they provide a first class service on every level; from simple Xero issues through to more complicated tax enquiries, they’re always on-hand to help me get it right. I’m certainly not their biggest customer, but I’m always made to feel like their most important one.

John Baker BKR Solutions
John Castle

Professional and Friendly

I would like to say that Panthera Accounting have helped me with my business accounts for more than 4 years now. They have consistently offered an excellent competitively priced service that works both professionally and in such a friendly way that I would highly recommend them to everyone considering using their services.

John Castle Ilexanna Limited & Birch Castle Homes Limited
Jonathan Morrison

They are always there to answer queries and sort out issues

I had been with Mr Dunn for 20 years when upon his death Panthera took over the business. They now play a bigger part in the running of my business, they do all the stuff that has to be done but I don't like doing ie book keeping, VAT, wages, and returns. They are always there to answer queries and sort out issues and make sure all Tax deadlines are met. Their costs are fair, service is great and I have and would highly recommend them.

Jonathan Morrison Wallingford Builders
Pippa Scott

Professional, friendly and personal service.

Panthera Accounting have gone above and beyond the call of duty to guide and support our Company. They offer a professional, friendly and personal service that can take the stressful and sometimes frightening feelings out of running a business. They have guided us through the working of Xero and have offered “teaching sessions” on the day to day running of the accountancy package. Our only regret is that we didn’t join their team earlier.

Pippa Scott Scott's Commercial Services Limited
Sara Southey

Panthera puts the personal back in to accountancy!

Tory and her team have provided a friendly, approachable and helpful service from the start. They have delivered a quality service, above and beyond anything I could have expected. Panthera, with the help of the Xero package, have taken the stress, strain and confusion out of managing my company and personal accounts. I look forward to working with them for many years to come.

Sara Southey Bluestones Garden Design
Tracey Miller

Panthera are fantastic.

Panthera are fantastic. Always professional, going the extra mile for their clients and delivering superb service. I recommend them all the time to my clients.

Tracey Miller Bigger, Brighter, Bolder BBB

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