The Chancellor, Richard Hammond, has announced a U-turn on the proposed rise in national Insurance rates for the self-employed.
In the Spring Budget it was announced that as of 6th April 2018, Class 4 NICs would be increasing to 10% from the current 9% in place, with a further increase to 11% the following year.
In a letter to Tory MPs, the Chancellor revealed that he has “decided not to proceed” with the planned rise in NICs for self-employed workers, despite only announcing the measure last Wednesday.
The Government came under fire for breaching a manifesto commitment not to raise income tax, VAT or NICs in this current parliament. Tory MPs were also furious at the measure, stating that it would harm entrepreneurial workers.
Explaining his reverse on the issue less than a week after he announced the changes, Mr Hammond wrote: “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 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 Four NIC measures set out in the Budget. There will be no increase in NICs rates in this Parliament.”
The Chancellor added that the cost of scrapping the planned tax rise would be funded by measures to be announced at his second Budget this year in the Autumn.
According to an Independent report, the Chancellor’s letter explaining his change of heart, 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.”
Mr Hammond used the first part of his letter to continue to say that the NICs increase “sought to reflect more fairly the differences in entitlement” between employed and self-employed people, adding that the Government still believes it is the right approach.
The Independent stated that ‘the move to change rates for some 2.5 million class four NICs payers would see those hit having to pay an extra £240 a year, though the Government said an accompanying move to abolish the class two category would reduce the number of people losing out to 1.6m and that no one earning less than £16,200 will be worse off.
Nonetheless, it sent a shockwave along the Tory back benches with a string of MPs appearing on TV and radio to question whether the hike was hitting “our people” – entrepreneurs and small business owners.
However, there are some changes coming April 6th which may affect you. If you are still unaware of these changes or need some clarification, call one of our experts on 01252 863 700.