Posted by James Pearson on 15 Mar 2017

National Insurance for the Self Employed taking a U-turn

Plans to increase the main rate of National Insurance for self-employed individuals have been cancelled in a quick U-turn from the Chancellor.

Budget Summary: National Insurance

On 8 March 2017 the Chancellor announced that the main rate of Class 4 National Insurance would increase from 9% to 10% from 6 April 2018 and 11% from April 2019; a move that proved controversial.

Accusations that the announced increase was in breach of a 2015 manifesto pledge, discord from the back benches and a hostile response from the press has led the Chancellor to reconsider and the increase will now not go ahead.

Announcing the policy change, the Chancellor 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 Philip Hammond’s budget speech, the National Insurance increase was described as addressing an unfair difference between the taxation of employees and the self-employed. This was paired with a reduction in the tax-free dividend allowance from £5,000 to £2,000 in order to address a “parallel unfairness” relating to those working through their own companies.

Tax-Free Dividend Allowance Reduction

With the reduction in the tax-free dividend allowance still going ahead, it seems that the Chancellor’s aim to bring fairness to the taxation of employees, the self-employed and those working through their own companies has been undermined.

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