As you may be aware, Chancellor Philip Hammond announced in the Budget on 8th March 2017 that there would be an increase in the Class 4 National Insurance Contributions payable by the self-employed.  Just one week later however, on 15th March 2017, Mr Hammond was forced to reverse this decision as it came to light that the government were breaching a pledge they made in the 2015 Conservative Manifesto to enforce a ‘tax lock.’

The 2015 Conservative Manifesto pledged that there would not be an increase ‘in VAT, national insurance contributions or income tax.’  It has therefore been alleged that a breach of the Manifesto was made in the 2017 Budget when Mr Hammond announced that the Class 4 rate of National Insurance Contributions was to ultimately rise from 9% to 11%.   The reasoning behind this decision was that there has been a rise in the number of people registering as self-employed.  Mr Hammond stated that, ‘as our economy responds to the challenges of globalisation, shifts in demographics and the emergence of new technologies, we’ve seen a dramatic increase in the number of people working as self-employed or through their own companies.’  He raised concerns over the gap between the amount of tax that a self employed person pays, in comparison to workers who are not self-employed.  He stated that ‘many of our most highly paid professionals work through limited liability partnerships and are treated as self-employed.’   Therefore there was a worry that people were motivated by the low NI contributions when registering as self-employed.

Following a rebellion from MPs regarding the controversial increase in NI contributions, Mr Hammond wrote to MP Andrew Tyrie on 15th March 2017 stating that, ‘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.’  Therefore the increase in Class 4 National Insurance Contributions will no longer be imposed.

If you are self-employed, as an example, you may;

  • be a sole trader and run your business for yourself; and/or
  • have employees; and
  • sell services or goods.

You could also potentially be classed as self-employed if you are a partner in a business partnership, or if you have set up your own limited company.

If you are classed as self-employed, it is important to ensure that you are complying with the law when setting up, and carrying on business.

As a self-employed person, you can keep your business profits however you must register with the HM Revenue and Customs so that the amount of income tax you pay can be assessed through self-assessment.  You should register for VAT if your turnover is over £83,000.00.  You will also need to pay Class 2 and Class 4 National Insurance Contributions.  The current rates for NI Contributions are:

  1. Class 2: £2.80 per week
  2. Class 4: 9% on profits between £8,060.00 and £43,000.00. 2% on profits over £43,000.00.

As previously mentioned, the 2017 Budget intended to raise the Class 4 rate of 9% on profits between £8,060.00 and £43,000.00 to 11%; this will no longer be imposed.

At Farleys we always advise that prevention is better than cure and this is why you should keep up-to-date in the latest developments regarding employment law.  If you are self-employed and you seek advice regarding the running of your business, please contact one of our experienced employment law solicitors today on 0845 287 0939 or submit an enquiry through our online contact form.