The headlines following the Budget were dominated by the proposed 2% rise in the main rate of Class 4 national insurance (NIC) which is paid by the self-employed. This appeared to break a Conservative Party manifesto pledge not to raise the rate of income tax, national insurance or VAT in this Parliament, ie before May 2020.
On 15 March Chancellor Hammond announced a U-turn: there won’t now be an increase in Class 4 NIC in 2018 or in 2019. This will leave an unexpected gap in the finances which must be filled. Stand by for some additional tax changes to be announced in the second 2017 Budget to be held in the Autumn.
Class 2 NIC, which is also paid by the self-employed, will be abolished from 6 April 2018, as was announced in the 2016 Budget. Class 2 NIC is levied at a flat rate: £148.20 per year for 2017-18, when profits exceed £6,025.
Class 2 NIC can be paid on a voluntary basis by self-employed people with small profits, in order to build up an entitlement to the state pension. From
6 April 2018, any voluntary NIC paid to protect state benefit rights will have to be paid as Class 3 NIC, which will cost at least £741 per year (2017-18 rates).
Individuals who attained state pension age before 6 April 2016 can pay voluntary Class 3A NIC to boost their state pension by up to £25 per week. The amount payable depends on the taxpayer’s age at the time of the payment. If you want to top-up your state pension, you must make the Class 3A NIC payment before 6 April 2017.