National Insurance needs a broader review, not more tinkering, argues ATT

The Association of Taxation Technicians (ATT) is calling on the Government to take a broader look at how the UK taxes the employed and self-employed. The call from ATT is after today’s announcement¹by the Government that the National Insurance rise which came into effect in April this year will be reversed from November, and that the Health & Social Care Levy (which was due to take effect from April 2023) is axed.

Jon Stride, Vice-Chair of the ATT’s Technical Steering Group, said:

“Employees and employers may welcome this reversal of a rise which only took effect a little over five months ago because it reduces their respective tax bills – but it also represents the third change to National Insurance so far this year, which we think is too much tinkering for workers, business and their advisers .²

“Rather than tinker with National Insurance rates and thresholds, we urge the Government to take a bolder approach and look at the wider issue of the distinctions in taxation between employees and the self-employed.”

Currently the self-employed and employed pay different types of National Insurance, with the overall cost generally lower for the self-employed. In addition, businesses themselves pay National Insurance when they employ somebody but not when they engage someone who is genuinely self-employed to carry out work for them.

Jon Stride said:

“The differing tax burdens placed on employment and self-employment have led to distortions in the labour market, incentivising businesses to treat individual as self-employed, which in turn results in them having fewer employment rights. It has also resulted in HMRC introducing the controversial IR35 rules. The Prime Minister has indicated that a review of the IR35 regime is on the cards, but we think that the elephant in the room is that National Insurance needs to be addressed as well.”

In 2018 the Government launched a consultation³ on employment status for both tax and employment law purposes. But in a response published in July, they concluded that no changes should be made to the current system.

Jon Stride said:

“We were disappointed that some four years since the Government launched its consultation on employment status, it is effectively maintaining the status quo. As part of any future review, we would encourage the Government to reconsider whether there is scope to simplify the current rules, in particular the difficulties of having two classifications for tax law (employed or self-employed), but three in employment law (which also includes ‘worker’).”