National Insurance for Self-Employed People

The Social Security Advisory Committee (SSAC) has published a summary of its study of Social Security Provision and the Self-Employed. This notes the disparity between the National Insurance contributions payable by a self-employed person and an employee on similar earnings (especially if the employer’s contributions are also taken into account), and questions whether it is proportionate. At present, the main advantages enjoyed by employees in return for their higher contributions are access to Statutory Maternity Pay, etc, and the ability to accrue an Additional Pension – and that second advantage will be lost when the Single Tier Pension is launched in April 2016.

Apart from the simple question of equity – that the scheme is after all a National Insurance scheme, so the contributions should be proportionate to the unemployment, sickness and pension benefits bought – the SSAC puts forward four reasons for recommending the Government to review the contribution rules. First, the proportion of self-employed people in the national workforce is increasing – from 12 per cent in 2000 to 15 per cent at the beginning of 2014.  Accordingly, any under-contribution is growing in significance.  

Second, the range of people now working on a self employed basis is far wider than the ‘small shopkeepers, crofters, fishermen, hawkers and outworkers’ envisaged by the Beveridge Report. One needs to consider, therefore, whether the original assumptions still hold true.

Third, the law which determines whether an individual is employed or self-employed is complex and confusing, leading to what the SSAC terms a ‘permeable boundary between employment and self-employment’, so that people may be genuinely unsure about their own employment status, or that of the people working for them. The Committee recommends that ‘the Government should consider the extent to which it is possible to rationalise the definitions of who is (and who is not) self-employed for the purposes of employment, National MinimumWage, taxation, and Social Security law.’

Fourth, and perhaps most importantly, the disparity in contributions and the ‘permeable boundary’ have both encouraged and facilitated a growth in ‘false self-employment’.  Although the motivation is usually to reduce the National Insurance contributions payable, ‘false self-employment’ has other adverse effects, such as denying access to much of the employment protection legislation.

Looking forward to Universal Credit

The document also expresses concern about the proposed treatment of self-employed people under Universal Credit. It highlights the onerous nature of the monthly income reporting requirement, the confusing differences between the Universal Credit and Self Assessment rules for calculating earnings, and the disallowance of vehicle purchase costs, even where (as in the case of a taxi) the vehicle is the business.