The Government is drawing up plans to increase national insurance bills for people who leave employment to run small “lifestyle” businesses.
According to a report in the Times, the Treasury is expected to outline the plan to increase NI contributions in a forthcoming consultation paper.
However, there are concerns that, like IR35 and other measures targeted at small businesses, it will end up being a catch-all that will hit many types of self-employed people.
The NI position of self-employed individuals has for some time been the subject of debate as the taxman counts his perceived losses in this area. Self-employed individuals pay national insurance at eight per cent, compared to 11 per cent for employees and the Treasury also loses national insurance paid by employers for each worker, at a rate of 12.8 per cent.
Though the plans are still being drawn up, it is understood that officials aim to penalise these micro-businesses by increasing the national insurance they pay by 1 or 2 per cent.
The measure could raise millions of pounds of revenue. It is understood that the scheme could work by imposing the rise on those companies that fit criteria denoted by turnover or profit. It could catch all manner of self-employed people in the net.
The move would be the latest in a string of attacks on the small company sector by the Treasury. It recently closed what it called a “loophole” in the law forcing small companies to pay 19 per cent on profits extracted from their companies.
In the March Budget the Chancellor said he wanted to ensure that all small companies and self-employed people were paying the “right” amount of tax. But accountants argue that it would be virtually impossible to distinguish between “lifestyle” businesses and those the owner intends to grow into a large business employing hundreds of people.
Sources: