Tax & admin · 15 March 2017

Chancellor sensationally scraps planned self-employed NICs increase

Philip Hammond is the new chancellor
Hammond’s pledge to increase NICs from the self-employed clashed with the Conservative Party’s manifesto pledge

Following his Spring Budget 2017 speech, chancellor Philip Hammond has reversed plans for a Class 4 NICs increase for the UK’s self-employed workers.

In a letter written to Conservative Party MPs, Hammond stated that “there will be no increases in NICs rates in this Parliament”, citing the party’s 2015 election manifesto pledge as the factor.

The Class 4 NICs increase was to be incrementally made over the next three years, intending to close the gap in contributions between self-employed workers and the 12 per cent paid by full-time employees. The plans were set to raise Class 4 NICs from nine per cent to ten per cent in April 2018, and to 11 per cent in 2019.

In the letter, Hammond confirmed the abolition of Class 2 NICs from April 2018.

 

Hammond letter

Hammond letter
Hammond’s letter to his colleagues confirmed abolition of Class 2 NICs next year

Commenting on the NICs increase “stunning u-turn”, deVere Group CEO, Nigel Green, said hiking taxes on the self-employed would only serve to “punish ambition and undermine aspiration” in Britain.

“Whilst we welcome this climbdown, it does show just how out of touch this government is with Britain’s hardworking, already-squeezed and over-taxed entrepreneurs – the lifeblood of the UK economy,” he said.

Green added: “This grinding u-turn is now a golden opportunity for this government to go one step further and better incentivise those self-reliant individuals who take on the responsibility, risk and burden of setting up companies and creating jobs and wealth. This is perhaps more important than ever as Britain prepares to launch divorce proceedings from the EU.”

Lucy-Rose Walker, CEO of Entrepreneurial Spark, said her organisation – which opposed the NICs increase – was “delighted” over the decision.

“To truly succeed as a nation we need to reward, rather than discourage, entrepreneurship. We’d still like to see more be done regarding other policies announced during the Budget, in particular the cut to dividend tax credits, but this is certainly a step in the right direction,” she said in a statement.

However, the announcement was not positively received by all.

In response to Hammond’s reversal on an NICs increase, Sean McCann, chartered financial planner at NFU Mutual, warned that self-employed people could still pick up the bill in other ways.

“The true cost of this decision may still be borne by the self-employed,” said McCann.

He added: “It’s clear that the chancellor will look to recoup money from other sources and many tax reliefs will be in his sights. The likes of Business Property Relief – used by many sole traders and partnerships to hand down family businesses free of inheritance tax – could now be under threat and any sense of relief among self-employed people could become a sense of foreboding once the autumn Budget draws near.”

Find out how the future of self-employment could look in Britain as we interview the man behind the Taylor review

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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