Self-employed national insurance contributions rise in Budget 2017

In the budget on March 8, Chancellor Philip Hammond announced new measures to increase national insurance contributions for self-employed workers from 9% to 11% by 2019.

So, what does this all mean?

He also refused to answer questions about whether voters should feel betrayed that the government had broken the pledge in its manifesto.

Announcing the measures in the House of Commons, Mr Hammond said: “Historically, the differences in National Insurance contributions between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits”.

“Although the figures that we are discussing are very minor – a percentage point here and there, or two over two years – they speak to a tone that is not entirely helpful, and in that I urge a rethink”.

Technically, there are four different classes of National Insurance. Class 1 is paid by employees.

Employers also pay a contribution, of which more later. The tax-free dividend allowance will be slashed from £5,000 to £2,000 from next year, raising £2.6bn over the parliament.

These changes in company dividend taxation had already brought in tax increases of thousands of pounds for many business owners, so being hit immediately by another tax rise will be seen as a kick in the teeth for entrepreneurs up and down the country.

Treasury estimates suggest 2.5m people will lose £240 a year as a result of the NICS class 4 change.

Labour has criticised the move, saying there is “nothing fair” about it.

Mr Hammond said the overall average loss to self-employed people would amount to only 60p a week, while all those earning less than £16,250 will still see a reduction in their bills.

“They [the government] have taken the easy route by taxing us”.

“They are still paying one per cent less than employees, but they do not get sick pay or maternity pay”. Future growth of the UK’s 4.8 million-strong self-employed population is now at risk.

“If politicians continue to make silly manifesto pledges about not changing taxes and the rest of us resist sensible changes such as this, we will end up with the tax system we deserve – inefficient, inequitable, complex and increasingly unable to raise revenue in the face of a changing economy”.

A more optimistic outlook for the United Kingdom was also announced, with the Office for Budget Responsibility upgrading its forecast for GDP growth in 2017 from 1.4% to 2%.

The more money workers make, the more National Insurance they will pay.

As far as the inheritance tax changes are concerned, the legislation includes a de minimis limit which overlooks interest in an offshore structure where the holder (and any connected persons) own less than 1 per cent of the interest in the relevant structure by value.

“This effectively continues a decade without real earnings growth, as the independent Institute For Fiscal Studies stated “one can not stress enough how terrible that is”.

The IFS says the maximum loss, affecting those with profits over £45,000, would be £589 per year.

“But with the introduction of the new state pension, these differences have been substantially reduced”.

What is the bigger picture?