20 03 2017

U-Turns On National Insurance Levy Hike

UK Chancellor Philip Hammond has backtracked on plans to increase National Insurance (social security) contributions for self-employed people.

In a letter to MPs, he said that there would be no increase to NI contributions for the self-employed in the Class 4 band "in this parliament."

The Budget statement had included plans to legislate to increase the main rate of Class 4 national insurance contributions (NICs) from 9 percent to 10 percent with effect from April 6, 2018, and from 10 percent to 11 percent with effect from April 6, 2019.

He had earlier delayed the tax change in response to criticism from senior members of the Conservative Party and opposition parties that it breached the Party's election pledge not to increase social security levies.

"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," he said in the letter. "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."

Chris Bryce, Chief Executive of the Association of Independent Professionals and the Self Employed (IPSE), welcomed the move, saying: "Two-and-a-half million hard working people will sleep easier tonight. The decision to remain true to the Conservative manifesto pledge is most welcome and we are delighted they have considered the detrimental effect imposing a tax rise on the self-employed population would have. The self-employed add a significant deal to the UK economy and the reversal of these changes allows them to continue doing exactly that."

Meanwhile the Chartered Institute of Tax Professionals said that the U-turn highlighted the need for more thorough consultation and a strategic approach to tax policy. "This is yet another example of a Budget 'rabbit' that has come back to bite the Chancellor. Philip Hammond is just the latest chancellor to discover the perils of announcing tax changes without consulting or preparing the ground adequately in advance," it said.