"The report argues that the current system taxes identical work at very different rates. An employee earning £39,000 sees £7,214 taken in National Insurance across employee and employer contributions. A self-employed person with £39,000 in profits pays £1,586. The gap costs the Exchequer £10.05 billion a year. Under Bright Blue’s proposal, employers’ National Insurance, currently 15% on earnings above £5,000, would be scrapped entirely, and employees’ Class 1 rates would be cut to match the lower Class 4 rates paid by the self-employed. Income Tax would rise to compensate. This would be done gradually. The self-employed would pay more tax overall but employees would pay no more tax and, under a model that achieves fiscal neutrality rather than revenue raising, employees would actually pay less tax overall."
Somebody at Bright Blue has done their calculations wrong and so in order to compensate for the loss of employer NI contributions, both the employee and self employed would need to pay over 7.5% more income tax in order to achieve fiscal neutrality.
That would go down well with the savings made by employers probably going towards bonuses or shareholders via share buybacks or dividends.
Employee vs Self-Employed Comparison
Tax Type
Self-Employed (£39k Profit)
Employee (£39k Salary)
Difference
Income Tax
£5,286.00
£5,286.00
£0.00
National Insurance
£1,585.80 (Class 4)
£2,114.40 (Class 1)
+£528.60 paid by employee
Total Deductions
£6,871.80
£7,400.40
+£528.60 paid by employee
Take-Home Pay
£32,128.20
£31,599.60
-£528.60 less for employee
"The report argues that the current system taxes identical work at very different rates. An employee earning £39,000 sees £7,214 taken in National Insurance across employee and employer contributions. A self-employed person with £39,000 in profits pays £1,586. The gap costs the Exchequer £10.05 billion a year. Under Bright Blue’s proposal, employers’ National Insurance, currently 15% on earnings above £5,000, would be scrapped entirely, and employees’ Class 1 rates would be cut to match the lower Class 4 rates paid by the self-employed. Income Tax would rise to compensate. This would be done gradually. The self-employed would pay more tax overall but employees would pay no more tax and, under a model that achieves fiscal neutrality rather than revenue raising, employees would actually pay less tax overall."
Somebody at Bright Blue has done their calculations wrong and so in order to compensate for the loss of employer NI contributions, both the employee and self employed would need to pay over 7.5% more income tax in order to achieve fiscal neutrality.
That would go down well with the savings made by employers probably going towards bonuses or shareholders via share buybacks or dividends.