Rises in National Insurance Contributions (NICS) for self-employed workers have been criticised as “penalising entrepreneurs”.
Chancellor Philip Hammond announced in the Budget that the rate for Class 4 NICS would rise from 9% to 10% in April 2018, and to 11% in 2019.
That compares to 12% currently paid by employees.
“The difference in National Insurance Contributions is no longer justified,” Mr Hammond said.
Previously self-employed people paid lower NICS than employees, as they received fewer state benefits.
But the chancellor said the self-employed now had equal access to the new state pension. He also said that the government would consult on parental benefits, some of which self-employed people cannot claim.
The chancellor said all self-employed people who earned less than £16,250 would be better off.
Around half of the 4.8m workers registered as self-employed earn less than £13,000, according to the think tank the Resolution Foundation.
As a result it said most such workers – such as low-paid hairdressers – will be better off by 2019/20.
Winners and Losers
- A self-employed hairdresser – with average earnings of £12,700 – will be £70 better off
- A self-employed taxi driver – with average earnings of £17,300 – will be £20 worse off
- A self-employed management consultant – with average earnings of £51,100 – will be £620 worse off.
source: Resolution Foundation
But the rise, which will cost those affected an average of 60p a week, was criticised by entrepreneurs.
“Increasing National Insurance rates for the self-employed could be a further step by the government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great,” said Lucy-Rose Walker, the chief executive of Entrepreneurial Spark.
Those paid less than £16,250 will be better off because of a planned abolition of of a different class of NICS – Class 2 – in April 2018.
Under Class 2 NICS, self-employed workers pay 2% on qualifying earnings between £5,965 and £8060, amounting to £2.80 a week.
The increase in the NICS rate will raise £145m a year for the Treasury by 2021-22.
Budget 2017: National Insurance rate rise criticised}