Budget 2017 Self Employed NIC
Published / Last Updated on 09/03/2017
Budget 2017
Self Employed NIC
The government has confirmed that it is dramatically changing National Insurance contributions (NIC) for the self-employed to bring this into line with employees.
Now that State pensions have been aligned for both employees and the self-employed with the new flat rate state pension and the abolition of the State Second Pension/SERPS for employees, we think this is fair enough.
That said, benefits for the self-employed should therefore also be aligned. Employees get higher statutory sick pay, statutory maternity pay and other benefits that the self-employed do not. They should equalise these.
The main changes to self-employed National Insurance Contributions are:
- Self-Employed Class 2 Flat Rate NICs will be abolished in April 2018. Meaning that the self-employed will pay a % Class 4 rate on all profits over the earnings threshold, much in the same was as employees.
- Self-Employed Class 4 ‘profits’ rate NICs will increase from 9% to 10% in April 2018 and 11% in April 2019.
- PAYE employees already pay National Insurance at 12% (up to an upper earnings limit and then 2%) and indeed employers also National Insurance for employees on most of their earnings at 13.8%.
In short, all self-employed people with profits over £16,250 will pay more NIC and this change will bring the self-employed closer to employees in term of social security contributions.
We believe this is a push to get more self-employed people to move to becoming limited companies. The self-employed will do this and become ‘employees’ to control PAYE income and pay the balance of profit in dividends. This is easier for the government to monitor and indeed with digitisation of tax records, will save money.
We then predict further changes to the rates of taxes on dividend and a complete withdrawal of the tax free dividend allowance currently at £5,000 pa but reducing to £2,000pa in 2018 and we suggest probably zero in the future.
