News & Views

No class 4 national insurance increase!

Written by Lisa Macpherson
15/03/2017

After causing some consternation on his own back benches with his Budget announcement that NIC for the self-employed would rise by 1% to 10% from 6 April 2018, and a further 1% to 11% from 6 April 2019, the Chancellor has today had to withdraw the planned increases.

It has been announced today (15th March) that the current Government will honour the Conservatives’ 2015 Election Manifesto promise that it would not increase headline tax rates for the five years of this parliament.

Mr Hammond appeared to have momentarily forgotten this when announcing this initiative last Wednesday and, although he and Theresa May have tried to defend the policy, they have had to admit defeat.

Mr Hammond’s letter to parliament makes interesting reading however, he said: “It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made.

In 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 measures set out in the Budget.

There will be no increase in NIC rates in this Parliament. We will continue with the abolition of Class 2 NIC from April 2018. The cost of the changes I am announcing today will be funded by measures to be announced in the Autumn Budget.

I undertook in the Budget speech to consult over the summer on options to address the principal outstanding difference in benefit entitlement between employed and self-employed: parental benefits. We now intend to widen this exercise to look at the other areas of difference in treatment, alongside the Government's consideration of the forthcoming report by Matthew Taylor, CEO of the RSA, on the implication of different ways of working for employment rights.”

Based on this, I think we can look forward to some ‘creative’ revenue raising in the autumn, coupled with the results of the review mentioned above. Will we reach the stage posited by my colleague Daniel Sladen, discussing this issue before the Budget, of a look-through approach allowing taxation of undistributed profits of close companies at rates effectively equivalent to income tax rates?

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