It had already been announced in the 2016 Budget that Class 2 NICs will be abolished from April 2018. The government will now also legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.
Both employed and self-employed earners who reached state pension age from 6 April 2016 have access to the same flat rate state pension. This means that the self-employed have gained £1,800 a year more than under the previous system. The government therefore think it is fair that the NIC differential between them is reduced as employees are paying 12%.
15th March 2017
UPDATE: U-turn over Budget plan to increase National Insurance
” Plans to increase National Insurance levels for self-employed people – announced in the Budget last week – have been dropped.
Chancellor Philip Hammond has said the government will not proceed with the increases which were criticised for breaking a 2015 manifesto pledge.
In a letter to Tory MPs, he said: “There will be no increases in… rates in this Parliament.”
Labour’s Jeremy Corbyn said the U-turn showed a government “in chaos”.
BBC political editor Laura Kuenssberg said a U-turn of this size would normally be seen as a “humiliation”, but added that Labour MPs may be concerned that Mr Corbyn had been unable to make the most of the situation at Prime Minister’s Questions.
Mr Hammond had faced a backlash by Conservative backbenchers last week, who accused him of breaking a general election manifesto commitment not to put up National Insurance, income tax or VAT.
In his 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.”
Mr Hammond’s Budget announcement would have increased Class 4 NICs from 9% to 10% in April 2018, and to 11% in 2019, to bring it closer to the 12% currently paid by employees.
He said “most commentators” believed the “sharp increase” in self-employment over the last few years had in part been “driven by differences in tax treatment”.
To read the full article from the BBC including reactions & analysis click here…