Plans to increase Class 4 National Insurance contribution levels for self-employed people have been dropped. In the Budget statement on 8 March, Chancellor Philip Hammond said a fair tax system should ensure that, “people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax”.
He highlighted the gap between the amount of NICs paid by employees and the self-employed, which was set to widen due to the previous Chancellor’s abolition of Class 2 NICs for the self-employed from April 2018. The self-employed also gained access to the same State Pension as employees in April 2016.
To address this difference, the Chancellor announced increases in Class 4 NICs. However, post Budget, Hammond faced a backlash by Conservative backbenchers, who accused him of breaking a general election manifesto commitment not to put up National Insurance, income tax or VAT. He has now bowed to this pressure.
In a letter explaining his change of heart 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 the 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 measure set out in the Budget.”
Adam Marshall, director general of the British Chambers of Commerce, said: “The [proposed] NICs rise, together with the cut to dividend tax-free allowances, was not viewed favourably by entrepreneurs, so this move and pause for thought are welcome.
“It would be far better to look at business and employment taxation in the round, to ensure that our tax system is competitive and equitable.”