Budget 2017 – NICS for the self-employed

Big changes planned for NICs payable by the self-employed

Mr Hammond was keen to point out that the self-employed are paying less in NIC than the employed, a fact which he described as unfair.  In his comparison he conveniently made the difference appear greater by quoting both employee’s and employer’s NIC contributions when describing how much NIC was paid in respect of an employed individual.  In terms of NIC contributions actually suffered by the individual, the difference between what is paid by an employed individual and a self-employed individual is only currently 3%. Despite the Chancellor’s reference to the fact that the new State Pension for those reaching retirement age on or after 6 April 2016 gives the self-employed access to the same State Pension as employees, there remain differences in entitlements to parental benefits, job-seekers allowance, statutory sick pay and holiday pay.

Class 2 NICs will be abolished from April 2018.  This was something announced by George Osborne in 2016, but would increase the differential in the amount of NICs paid by employed and the self-employed. However, as Class 2 NICs are a flat rate of £2.80 a week, Mr Hammond is going ahead with the abolition and instead increasing the rate of Class 4 NICs by 1% from April 2018, bringing the rate to 10%. A further 1% rise will be applied from April 2019.

The true reason for these changes can be found in the detailed background information published on gov.uk. The proportion of the work-force who are self-employed has been rising steadily since 2000. It is estimated that the lower rates paid by the self-employed cost the Exchequer £5.1 billion in 2016-17.

The changes are however designed to protect those with the lowest profits. Only someone with annual profits in excess of £16,250 in 2019/120 will have to pay more NIC than under the current rules and when combined with the increases in the personal allowance, (based on these changes alone) only someone with profits in excess of £32,900 in 2019/20 will pay more in tax and NICs than in 2015/16.