This week, my partner and I spent a couple of days in the New Forest with our bikes to celebrate my birthday. I hired a van to transport the bikes down to the forest, so I was officially a “White Van Man”.
This month our Chancellor Philip Hammond, announced that he was reversing the planned decision to cut Class 2 NI for the 2.7 million self-employed workers, the so-called “White Van Man” Tax. Hence the uproar. But if you look at the details, it’s quite fair to do so. Let me explain.
There are four classes of NI:
- Class 1 for both employed and your bosses. Both pay a large percentage, and for the employed, the highest rate is 12%. Class 1 also hits benefits in kind, so your company car gets slapped NI on it too.
- Class 2, the one in the news, is £2.95 per week for all self-employed.
- Class 3 is for those people who want to pay voluntary contributions to get the most State Benefits such as State Pension or Maternity Benefits. Here’s an example I like. The minimum contribution record to get your Basic State Pension is ten During the War, armies of women worked in the munition’s factories and farms. They accumulated a record of 4 or 5 years, not enough, so many contributed Class 3 to get to the 10-year target and claim a small State Pension.
- Class 4 for self-employed again, but this time it’s a percentage of their profits. The top rate is just 9%, lower than employed.
You can see that the self-employed shouldn’t be up in arms at the reversal, it’s only fair they pay the £2.95 per week as they only pay at 9%. I think the newspapers should check the facts. Originally the Chancellor was going to increase their percentage from 9% to 11% and abolish Class 2, to simplify things but last year changed his mind.
Let’s have a look at our modern workplace to see how NI is paid or should be.
The Gig Economy
We’ve all been reading about the so-called “Gig Economy”, zero hours workers and such. Last night we had a takeaway delivered via Deliveroo, a pleasant young lad he was too. He’s self-employed so would be liable to Class 2 and 4, if his profits are enough.
I often catch an Uber; the drivers love the flexibility it gives them, they are also self-employed and pay Class 2 and 4 NI.
Zero Hours Contracts
My stepdaughter works in a restaurant in Edinburgh where she is a bartender on a zero hours contract. She is employed so liable to Class 1, and so is her boss.
These people typically own a small limited company so that they can provide their services to clients; many IFAs work this way. They are employed thus pay Class 1 NI, and so does the business. They also pay themselves dividends, these don’t have NI slapped on them, and the Chancellor is currently looking at this closely.
These so-called “fat cats” earn a salary so pay NI, but also have heaps of benefits in kind so their employer will pay large NI too. They often own shares so receive dividends, but the main issue here is salary sacrifice. They give up large amounts of salary to have their employer pay large sums into their pensions; this avoids NI for both parties. Clever.
But the cleverest thing is back to our “White Van Man”. I read today that the Government wants them to go green by driving more environmentally friendly vans. We’ll have to call them Green Van Man from now on.