The government has announced it will increase the main rate of
Class 4 National insurance contributions by 1% to 10% from 6 April
2018, and by a further 1% to 11% from 6 April 2019.
As previously announced at Budget 2016, Class 2 NICs will be
abolished from April 2018.
Self-employed individuals will be able to access and determine
entitlement to contributory social security benefits through
payment of Class 4 NICs alone from April 2018.
Who will be affected?
This measure will affect self-employed individuals who currently
pay both Class 2 and 4 NICs.
This measure will be implemented from 6 April 2018.
Previously announced, the abolition of Class 2 NICs would, on
its own, increase the differential between the amount of NICs paid
by employees and those paid by the self-employed.
Historically, the differences in rates of contributions
reflected the fact that the self-employed received less support
than employees from the state in the form of contributory welfare
benefits and statutory payments, particularly the State Pension.
Over time this gap has reduced and although there is still not
complete alignment, this is mainly limited to certain parental
Since April 2016, the self-employed have had access to the same
State Pension as employees which is worth up to £1,800 a year
more to a self-employed individual than under the previous system.
The increases in the Class 4 rate reflects this more equal State
Taken together with the abolition of Class 2 NICs, this means
that only self-employed individuals with annual profits above
£16,250 in 2019/20 will pay more NICs as a result of the
changes. In combination with the increases in the income tax
personal allowance, only those self-employed individuals with
profits of more than £32,900 in 2019/20 would pay more in
income tax and NICs than in 2015/16.
Based on the 2017/18 Lower and Upper Profits Limits, the
incremental NIC cost of this measure to a self-employed individual
earning £45,000 or more per annum will be approximately
£1 per day (c. £370 per annum) for each 1% increase in
the main rate.
Self-employed contractors may look to pass on any additional NIC
costs from April 2018 through increases in their charges.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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