Government performs drastic U turn on Class 4 NICs

In our Spring Budget 2017 summary we outlined the Chancellor’s significant change for the self-employed that would have seen Class 4 National Insurance Contributions (NICs) increase from nine per cent to 10 per cent in April 2018 and again to 11 per cent in 2019.

However, after growing pressure from within his own party and following opposition from businesses this measure has now been dropped.

At its peak, this would have raised an additional £645 million in 2019-20, and now the Chancellor has been left with a £2 billion hole in his plans, which will have to be met elsewhere to meet spending commitments.

In a letter to MPs, the Chancellor said: “In light of the debate over the last few days it is clear that compliance with the ‘legislative’ test of the [Conservative] Manifesto commitment is not adequate.”

Class 2 National Insurance Contributions – for those earning between £5,965 and £8,060 – will still be scrapped later this year, as per previous plans, so it is important that those with self-employed status check their affairs.

Importantly plans for Dividend Tax will still go ahead, which will see the tax-free allowance drop from £5,000 to £2,000, from April 2018.

This means that a basic rate taxpayer who receives £5,000 in dividends, who currently pays no tax, will now have to pay £225 tax from April 2018, while a higher rate taxpayer will pay an additional £975.