Hammond U-Turn on Class 4 NICs
As we reported in our blog Spring Budget 2017 - Owner managers and the self employed worse off the self-employed were one of the biggest losers of the Spring Budget, when the Chancellor announced an increase by 1% on the main rate of class 4 NIC from April 2018, with a further 1% increase the year after. This increase was not to take effect for earnings above the upper earnings limit where the rate was to remain at 2%.
The Chancellor justified the increase by stating that as new pension rules have provided the same benefits to self-employed people and employees, this makes unfair the much higher NIC charges for employees compared to those suffered by the self-employed. He also stated that the scrapping of class 2 NIC’s from April 2018 (£148/year) goes part way towards compensating for the increase in class 4 NIC’s that will be due (of £370/year) for those with earnings above the upper earnings limit.
The Chancellor failed to acknowledge the historic reasoning behind the different rates between the employed and self-employed; that the self-employed received less support from the state in the form of welfare benefits and statutory payments. He made the rooky-error of assuming no one would be bothered about the self-employed. He failed to acknowledge the Tory manifesto of a tax rate freeze announced by his predecessor.
The effect - a media backlash in the face of these announcements; the result – a complete U-turn on the proposals 1 week later!
Yesterday, Mr Hammond told MPs in a Commons statement: “In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”
The Chancellor confirmed that he will be using the Autumn Budget 2017 to “fund in full” the £2bn that will now be lost from the reversal of the proposed Class 4 NICs increase.
Author: Androulla Soteri
Title: Tax Development Manager