Delay to abolition of Class 2 NICs may add to self-employed tax bill.
Philip Hammond’s first Budget as Chancellor back in March 2017 hit a severe obstacle when he tried to raise national insurance contributions (NICs) for the self-employed.
This Autumn’s Budget produced a significantly more subtle approach and had to , given that the increase to Class 4 NICs in that spring 2017 Budget (partly to offset the end of Class 2 contributions from April 2018) nearly cost Hammond his job. Tory backbenchers and the popular press rose up against this new imposition on ‘white van man’ and his ilk… within a week the Chancellor had backed down.
The more subtle approach in the Autumn Budget was heralded by a written statement, issued three weeks before Budget day, in which the Exchequer Secretary to the Treasury announced that the proposed National Insurance Contributions Bill would be delayed until 2018, with the result that the abolition of Class 2 NICs (currently £2.85 a week) would be deferred for 12 months.
The net effect may have been an increase in NICs for the self-employed, but there was barely a murmur in the press.
In his Budget, the chancellor added 10p a week to the Class 2 rate and raised the upper threshold for the full NICs rate for the self-employed (and employees) by £1,350. The net result is that in 2018/19 the self-employed will pay more NICs than under the spring Budget plans if their income is less than £23,764 (but at least £8,424).
If you are a higher rate taxpaying employee, then typically your NIC bill will rise by about £104 a year, cancelling out almost a third of your income tax savings from the increased personal allowance and higher rate threshold, as the example below shows.
Have Income tax savings been NICked?
|Income tax @ 20%||6,700||6,900|
|Income tax @ 40%||2,000||1,460|
|Total income tax||(8,700)||(8,360)|
|NICs @ 12%||4,420||4,551|
|NICs @ 2%||100||73|
Keith Bonner, Director and lead IFA at HSC Financial Services Ltd says “NICs are an income tax in all but name. In some circumstances, such as salary sacrifice for pension contributions, this can be turned to your advantage. To find out more, please talk to us.”
For Pensions and general Tax Planning help, please call 01273 710404 or email us by clicking here.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.