Chancellor Philip Hammond has announced a U-turn on plans to increase National Insurance for the self-employed. The move was set out in his 2017 spring Budget speech just last week, but it received criticism for breaking a 2015 manifesto pledge.
It also prompted backlash from MPs despite PM Theresa May saying they would be able to vote on the tax hike in autumn. However, the Government has now scrapped these plans. We take you through what this U-turn could mean for you if you're self-employed.
Tax hike scrapped
In a letter to Conservative MPs, Philip Hammond wrote: "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 4 NIC measures set out in the Budget."
National Insurance Contributions (NICS) for self-employed were due to rise to 10% in April 2018 and to 11% in April 2019. The amount of tax you pay would increase from next year if you're self-employed – the rise was set to add an average of £240 to a self-employed person's annual National Insurance bill.
Experts predict that Philip Hammond will announce how he's going to fill the hole left in his budget in the Autumn Budget.
What does this mean for me?
The scrapping of these cuts is good news if you're self-employed as you'll continue to pay the same level of tax. You currently pay 9% tax on your annual earnings in NICS if you're self-employed.
The Chancellor argued that the increase in Class 4 NICS was necessary to help close the gap between contributions made by the self-employed and employees. Employees currently pay 12% in National Insurance. However, the move has been criticised by some MPS for breaking a 2015 manifesto pledge.
Even though you can now get the new State Pension if you're self-employed, you still don't have the same rights as employees. You don't receive annual leave, sick pay, paternity or maternity pay. This U-turn will therefore help you to have more in your pocket to budget for these times in your life.
You'll soon receive a small boost to your income if you earn less than £16,250 a year as the Government is still cutting Class 2 NICS in April 2018. Under Class 2 NICS, you pay 2% on your earnings between £5,965 and £8,060 if you're self-employed. This amounts to £2.80 a week – and this is money you'll now save.
Thinking about working for yourself? Get your finances in order before you become self-employed.
You can find out what the Budget 2017 speech means for you and your money in our blog.