One of the bigger announcements of the short and almost predictable final Spring Budget, is the raising of Class 4 National Insurance Contributions for the self-employed by 1% to 10%.
The scrapping of Class 2 NICs, announced in the March 2015 budget, is set to go ahead, creating a difference in the rate employers and employees pay in National Insurance Contributions, according to the Budget document.
Raising the Class 4 NICs is intended to counter this difference and reflect more equal pension entitlement, according to the Chancellor, although employees will continue to pay 12% in NICs.
Currently, Class 4 NICs are paid at 9% on profits between £8,060 and £43,000. The Chancellor’s announcement will see that rise to 10% in 2018 and 11% in April 2019.
Class 2 NICs are paid on profits of £5,965 or more. Previously, some of those who were self-employed had to pay both Class 2 NICs and Class 4 NICs.
Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes, according to a summary from HM Treasury.
In his speech, Mr Hammond said: “Employed and self-employed alike use our public services in the same way but are not paying for them in the same way.”
Some have welcomed the change, and Jonathan Riley, Head of Tax at Grant Thornton comments: “He is rightly concerned about the growing tax gap between those in employment and those self-employed, or using service companies.
“He sought to close that gap by increasing the Class 4 NIC rate by 1% in 2018 and a further 1% the year after. There will still be a gap between different types of worker – employees will still pay 12%. But this isn’t the big shock some see it as – the NIC rate will still be only 2% for earnings of self-employed over £43,000 a year.”
Frank Haskew, Head of ICAEW Tax Faculty, agrees: ““This announcement is a short-term fix in advance of a longer term review of self-employed taxation due in the Summer.
“There has never been any proper debate by Government on the position of employed v self-employed and the tax treatment differences between them, so this is a good opportunity to tackle a growing problem.”
However, others have seen this as an attack on entrepreneurs and Roy Maugham, Tax Partner, of UHY Hacker Young argues: “The increases in National Insurance alone will hit the self-employed for £2.1billion in the next five years.
“As we prepare for the risk of lower involvement of foreign corporates in the UK post Brexit, we need to be doing more to help our home grown small businesses not heaping more taxes on them.”
“The self-employed take big risks and miss out on holiday pay, sick pay and many other benefits. It is time The Treasury stopped picking on them.”