The U-turn on NIC rise does not alter the need for a fundamental review of the way we tax work.
In an open letter to his colleagues, the Chancellor has announced that the planned rise in Class 4 NICs for the self-employed will not now go ahead as both he and the Prime Minister wished to remain “compliant not just with the letter, but also the spirit, of the commitments that were made”. “There will be no increase in NICs rates in this parliament”, he added. Although reversing his previous announcement on Budget Day, the Chancellor reiterated his commitment to reform in the area of how we tax work once Matthew Taylor of the RSA has delivered his report on working practices in the Summer.
Commenting on the Government’s decision to reverse the proposal to raise National Insurance contributions (NICs) on self-employed workers, Michael Lavan, Tax Director at KPMG in the UK, said:
“While Philip Hammond’s announcement today will no doubt attract headlines, it does not alter the underlying need for a root-and-branch review of the way in which the UK taxes work in the 21st Century. The current tax system has not kept up with modern working practices.
“In his letter to Conservative MPs, the Chancellor has again highlighted the importance being placed on the findings of the Taylor Review which will be published in the Summer. It is hoped that this review will provide a springboard for proposals in the Autumn Budget, and lead to a more fundamental narrowing of the current fiscal differences between employment and self-employment. Only then will we see a move away from the confusing and ineffective sticking-plaster approach to tax policy when seeking to address the challenges around the taxation of labour.
“It should also be noted that the announcement leaves the Government with a £2bn hole to fill over the next five years, based on the policy costings which were published last week. Many will be asking whether this will lead to an extension of the new IR35 rules, from the public sector and into the private sector, as a means by which to close the tax gap.”
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