Last week, the Chancellor, Philip Hammond, produced his first budget. In what was intended to be a fairly quiet affair (offering a marked contrast to Hammond’s predecessor, George Osborne, who was known for being something of a political showman), Hammond managed to create a sizeable stir.
Pitchfork and torch at the ready? Okay, good. In his address, Hammond stated that class 4 national insurance rates will increase from 9% to 10% in 2018, with a further increase to 11% in 2019. A quick recap if you aren’t particularly au fait with national insurance rates (can’t think why you wouldn’t be?); the current rates for 2016/17 are as follows:
|Class||Rate for tax year 2016 to 2017|
|Class 2||£2.80 a week|
|Class 4||9% on profits between £8,060 and £43,000
2% on profits over £43,000
So, as of the tax year 2017/18, if your take-home is greater than £8,060, you will be paying an additional 1% on those earnings (and a further 1% in 2019).
In real terms, if your earnings are £43,000 or more, you will be paying an extra £350 per annum. In 2019, you’ll be paying an extra £700.
If you’re like me and enjoy a daily caffeine hit, that equates to 140 and 280 flat whites respectively. Not ideal. However, to many this won’t be too much of a hit so we needn’t get overly excited at this juncture.
It is also worth noting here that class 2 NICs are to be abolished in 2018 with ministers claiming that those earning £16,250 or less will actually pay less national insurance as a result of these changes.
That said, the increase to class 4 national insurance not only goes against the Conservative Party’s 2015 manifesto, it also provides a concerning indication of the government’s current thinking toward small business development in the UK.
EDIT: As of today (15 March 2017) Philip Hammond has performed a U-turn on the class 4 NICs hike and announced that the increase will not come into effect, conceding that it breached the wording of the Conservatives’ manifesto. Hammond did stand by his argument that the change would have made the tax system fairer, however, so we suspect this won’t be the last we see of the issue.