IFS tax report fundamentally flawed, says FCSA

A new report by the IFS suggesting that the different rates of National Insurance Contributions (NICs) between self-employed workers and employees are unfair is fundamentally flawed, according to the FCSA.

The Institute of Fiscal Studies (IFS) believes that the different NICs rates should be aligned because, in its opinion, there is minimal difference in the state benefits funded by NICs for self-employed and employed people. However, the FCSA has argued that self-employed people do not have access to NICs-funded statutory benefits like unemployment benefit or sick pay and when it comes to maternity allowance, employees receive at least 57% more in maternity pay than self-employed workers, based on FCSA’s analysis of a 2012 survey by XPertHR.

The IFS report also claims that the self-employed have the same level of entitlement to the new state pension. However, the FCSA has argued that self-employed workers are not part of the new auto-enrolment model, so they cannot access the tax relief now afforded to employees and funded by NICs under the new scheme. Furthermore, they will need to have paid 35 years or more of NICs in order to receive the state pension, and many self-employed people might not be in this position.

Commenting on the NICs issues raised by the IFS report, Julia Kermode, FCSA’s Chief Executive said: “Once again the self-employed are coming under attack for not paying enough tax, with IFS arguing that the NICs system needs addressing so that employees are not being penalised by an unfair system. That is wholly unjustifiable and they should take a proper look at their figures and the differential benefits provided that account for the different NICs rates paid.

“Freelancers and contractors are the backbone of our economy and have been propping up UK plc since the recession and they should be celebrated and supported, not chastised and penalised. It is worth pointing out that the self-employed do not want or expect these state benefits but if the NICs rates are to be aligned, then at the very least the access to benefits needs to be matched. And that could cost the UK Government dearly.”