Getting NICs in a twist

Man at desk - Getting NICs in a twist

In the March Budget, the Chancellor Phillip Hammond announced that the Class 4 National Insurance Contributions (NICs) for the self-employed would rise by 1% in 2018/19 and a further 1% in 2019/20.

However the following week, after widespread outcry that the increases were contrary to the Conservatives 2015 election manifesto, he issued a letter to confirm that there would be no increase to Class4 NICs in this Parliament.

More people are becoming self-employed in the UK, rising from 3.8 million in 2008 to 4.6 million in 2015.

   

Who pays NICs and what rates apply?

Employed people pay National Insurance Contributions as an employee and  employers also have to pay NICs.

Employed

Employee

Employer

Class I NICs

12% (for earnings between £8,164 - £45,000)

2% (for earnings over £45,000)

13.8% (over £8,164)

Self-employed

Class 2

Flat rate £148.20

Class 4

9% (for earnings between £8,164 - £45,000) 

2%  (for earnings over £45,000)

On earnings between £8,164 and £45,000, a basic rate employed taxpayer pays 20% Income Tax, 12% in employee NICs and 13.8% in employer NICs –a total of 45.8%. Higher rate taxpayers pay lower rates of employee NICs on earnings over the higher rate tax threshold.

What was the Government looking to address?

Historically the self-employed have paid lower NICs (9% v 12%) as their NICs did not earn additional State Pension benefits and provide some statutory benefits, such as sickness pay and maternity pay. The introduction of the flat rate State Pension last April has removed the main reason for the lower NIC rates for the self-employed who qualify for the flat rate State Pension.

In response to this, the Government were looking to close the gap between NIC rates for employees and the self-employed.

What next?

Despite the U-turn after the Budget, the Government have said that they will review areas of difference in the treatment of the employed and self-employed, including the proposed abolition of Class 2 NICs to simplify the payment of NICs for self-employed and findings from a forthcoming report on modern working practices. 


This article is for information only, based on our understanding of legislation and HM Revenue & Customs practice as at April 2017 and is not to be taken as Financial Advice. Origen are not tax specialists and should you have any concerns with regards to your personal tax situation, we would recommend seeking advice of an accountant.  CA1223 Exp 05/04/18


[ Date Posted: 18/04/2017 13:58:55 ]