Self-employed to be in higher demand thanks to health and social care levy says think tank. but at what price?
The NHS will be exempt from the new health and social care levy, government plans reveal, yet in a bizarre twist, care providers and their workers will pay for the levy, The Telegraph has reported.
There are also revelations that the NHS will take the lion’s share of the levy funds as part of the Conservative government’s attempt to bring down waiting lists and fill a gaping hole caused by COVID-related additional costs such as vaccinations, extra equipment and staff costs.
When the Prime Minister set out a manifesto-breaking ‘National Insurance Plus’ tax rise of 1.25 % it was applied to employees and employers.
That means umbrella company contractors and limited company directors will be doubly impacted by the tax hikes, but unlikely to get what they paid for as previously reported by The Freelance Informer.
That’s because combined with the Corporation and Income Tax rises announced in the March Budget, it means that the medium-term outlook is for tax rises worth over 1.6 % of national income – a bigger rise than in any Budget since at least the mid-1970s, according to think tank Resolution Foundation.
With over 80 % (around £25bn over the next three years) of the additional spending announced going to the Department of Health for priorities outside social care, just £5.4bn is going on social care.
Self-employed to be in higher demand thanks to health and social care levy
The think tank, however, believes the changes will increase the incentive for firms to use self-employed labour rather than employees, something the Chancellor has promised to tackle rather than exacerbate. Yet, if the HMRC has its way, that would likely be self-employed under the guise of umbrella company workers.
However, those contractors that opted to take inside IR35 contracts since the off-payroll rules became active in April may have more regrets than ever.
Freelancers, especially solopreneurs, are looking to be the biggest losers in all tax grabs announced this week, especially if they fall or are pushed into ‘inside’ IR35 territory or are among the millions of self-employed that have not been eligible for government support throughout the pandemic, more popularly known as the #ExcludedUK.
“We shouldn’t forget either, that the NICs hike will impact employers too, and push up the cost of hiring workers on the payroll – employers’ NI will jump from 13.8% to 15.05% next April,” said Seb Maley, CEO of IR35 insurance specialist.
IR35 rethink on the cards again?
“With this in mind, businesses that have needlessly forced their contractor workforce inside IR35 or insisted they work PAYE in response to IR35 reform should rethink this decision immediately.,” said Maley.
Four in ten businesses impacted by recent changes to IR35 in the private sector have admitted they would approach the changes differently if given the opportunity. This is according to a study carried out by IR35 specialist, Qdos, in which 59 businesses affected by the reform shared their experiences.
The most compelling finding of the survey was perhaps that nearly a third (30%) of businesses are already reviewing their strategy for managing the reform despite the changes only coming into force on 6th April 2021.
In an effort to ‘equalise’ tax contributions and taxpayer support between the salaried, self-employed and business owners either through tax hikes and/or tax mechanisms, such as IR35, the Chancellor’s stance is arguably and inadvertently already instigating the death knell for the country’s freelancers alongside a spree of solvent businesses closing up shop, as previously reported by The Freelance Informer.
With over 80 %(around £25bn over the next three years) of the additional spending announced going to the Department of Health for priorities outside social care, just £5.4bn going on social care.
Resolution Foundation
Manifesto-breaking tax rises
“The Prime Minister effectively broke the tax triple lock in the 2019 Manifesto with a £14bn National Insurance-based (NI) tax rise,” said the think tank.
Despite welcome improvements to a straight NI rise, the Health and Social Care Levy still suffers from some big unfairnesses of an NI rise, including:
- Generationally unfair: the Treasury has extended the levy to the earnings of working pensioners, but only one-in-six pensioner households have earnings. In contrast, two-thirds have private pension income that is exempted from the Levy.
- Younger generations will pay more: A typical 25-year-old today will pay an extra £12,600 over their working lives from the increase in employee National Insurance alone, compared to nothing for a pensioner relying on pension income.
- Landlords win: Because the Levy will be focused on earnings, other sources of income are undertaxed – including lots of rental income. Of Britain’s 1.9 million buy-to-let landlords, two-thirds are in the richest fifth of households.
- Work longer, pay more: A typical younger working-age individual would need to pay an extra £12,600 over the course of their working lives from the employee part of the Levy alone.
Changes will increase the incentive for firms to use self-employed labour rather than employees, something the Chancellor has promised to tackle rather than exacerbate.
Resolution Foundation
Social care cost cap benefits the South
The social care changes will make a substantial difference to reducing the costs faced by many people who are unlucky enough to need long periods of social care. But the operation of the system will throw up many challenges, said the think tank report, including:
- The £86,000 cap on care costs will be of most benefit to those in the South of England. Not only will they see a greater share of their total assets protected by the cap, higher care costs mean they are also more likely to reach the cap and then receive state support.
- In contrast, the expanded means-test will do relatively more to curtail pensioners’ spending on care costs in lower-wealth parts of the UK like the North East, where only 29 per cent of individuals aged 70+ have sufficient assets that they might receive no state support, compared to almost half in the South West.
- The system in practice may struggle to live up to its marketing. Many people will still need to sell their home to pay for residential care, if they do not have significant other assets.
A post-pandemic political strategy
“In reality, social care played a mere supporting role in what amounted to the setting out of wider shift in the Conservative Party’s approach to policy and politics. The Prime Minister has turned his back on low taxes in favour of an NHS-dominated state,” said Torsten Bell, Chief Executive of the Resolution Foundation.
Bell said that the biggest winner from the tax hike announcement was the Chancellor.
“[He] has been able to bank the savings from a tough settlement for unprotected departments and from ditching the Triple Lock. Low tax conservatism may be in retreat in the Conservative Party, but fiscal conservatism is alive and well in the Treasury,” said Bell.
