The Chancellor Philip Hammond announced a shock change to Class 4 National Insurance in his first Budget speech last week since attaining office.
As it stands, Self-employed individuals pay Class 2 National Insurance and Class 4 National Insurance. We recently posted about changes to the way Class 2 NI is paid and it has already been announced that this is going to be abolished from April 2018.
In the 2017-18 tax year, the self-employed pay Class 2 NI at £2.85 a week on profits between £6,025 and £8,164.
If profits are above £8,164, these are subject to Class 4 NI at 9% with profits above £45,000 being taxed at 2%.
In contrast, employees pay Class 1 National Insurance at 12% on earnings between £8,164 and £45,000. As with the self-employed, 2% is paid on earnings above £45,000
In the Budget, Philip Hammond has taken this opportunity to try and rectify what some see as an unfairness between Class 1 National Insurance paid by employees and Class 4 National Insurance paid by the self-employed.
The government will increase the main rate of Class 4 National Insurance from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.
Since announcing the changes, Philip Hammond has come in for a lot of criticism for breaking a manifesto promise with some of the loudest voices coming from his own back benches. Theresa May, whilst fully supporting her Chancellor (in public at least), has mentioned that a review into employment practices is currently taking place and further details into National Insurance will be announced later in the year. Maybe this will be present the opportunity to back down from what is being claimed as one of the biggest budget ‘own goals’ in recent years. Watch this space!